How businesses are going further to make international supply chains work for smallholder farmers

A Fairtrade Foundation report February 2013 contents

Executive summary ...... 4 I. Introduction and context ...... 8 II. Methodology...... 10 III. Summary of the perspective of small farmer organisations ...... 11 IV. Fairtrade, small farmer organisations and a sustainable food system ...... 12 V. Key insights from stakeholders on engaging with smallholder farmers ...... 14 VI. How businesses can go further ...... 16 VII. Conclusions and next steps ...... 26

Case studies: 1. Tate & Lyle Sugars – How organised farmers add value in Belize 2. Cafédirect – Business from scratch in Saõ Tomé 3. Ben & Jerry’s – Promoting supply chain partnerships globally 4. Marks & Spencer – Helping smallholder tea farmers capture value in Kenya 5. Traidcraft – Developing added-value tea partnerships in Malawi 6. Liberation – Helping smallholder nut producers meet EU food safety requirements in Malawi

Appendix I The Fairtrade standards framework ...... 40 Appendix II Roles and responsibilities in the Fairtrade system ...... 41 Appendix III List of interviewees...... 43

Acknowledgments: This report was written by Ian Bretman and edited by the Fairtrade Foundation. Paul Holland, Simon Appleby, Dr Stephanie Hime, Lois Watts and George Rodwell at KPMG conducted the company interviews and are supporting this project on a pro-bono basis. The Fairtrade Foundation wishes to thank the many individuals and companies who agreed to take part in the research and also acknowledges the support of Twin and The Co-operative 2 How businesses are going further to make international supply chains work for smallholder farmers 3 Group in the first stage of this project. Executive summary

This paper comes at a time when there is farmers and companies can establish sustainable Key insights licensees towards deeper commitment, although they increasing recognition among business and equitable relationships across highly demanding are very much in tune with the development aims of and government in the role smallholder and fast-moving international supply chains. This the latest standards for smallholder organisations 3 4 farmers can play in a truly sustainable paper builds on an earlier policy report by Twin that 1. A holistic view of supply chains (see Appendix 1). considered the experience and perspective of small food and farming system. farmer organisations and contributed to a multi- The supply chains that connect smallholders to As good practice in this area becomes established, stakeholder forum in May 2012. This second phase mainstream consumer markets are often a web this could be reflected in a raised minimum threshold For the past thirty years it has been hard for of the work has been developed through discussions of interdependent relationships and there is an for businesses, provided the cost or complexity of smallholder farmers and their partners to challenge with commercial stakeholders and analysis of their increasing need to take a holistic view of their internal certification was not unduly increased; this ensures the assumption that urbanisation of population feedback by senior management at the Foundation. structures and to understand the interdependencies. a level playing field in which the committed are not and the industrialisation of agriculture are the only This is especially important when retailers and undercut by the merely compliant. However, this is an pathways for development and this view was a major The interviews and discussions undertaken for this large brands use intermediaries to manage their ongoing process and some companies will always be cause of the erosion of the technical, financial and report have highlighted the exciting opportunities relationships with smallholder groups, which can limit piloting work beyond minimum standards and would marketing services on which smallholder farmers that are emerging for the Fairtrade Foundation to their understanding of how their actions may affect like to communicate this to consumers. While the depended. These assumptions are still prevalent facilitate deeper collaboration that furthers the smallholders, and vice versa. While buying direct from FAIRTRADE Mark plays a vital role in providing a clear in many countries but there is growing interest in goals of smallholder organisations, businesses, smallholders may not always be practical in every and specific guarantee that helps consumers identify an alternative and the feedback from commercial consumers, civil society agencies and donors. Most supply chain, there is increasing recognition of the products that meet its standards from other products stakeholders surveyed for this report indicates a important for its mission to support smallholders need to have more direct communication and sharing in the market, new ways of differentiating the brands greater shared perspective on the major global to take more control over their lives and determine of information among all the links of the chain, with that ‘go further’ than the minimum would be welcome. sustainability challenges, including the need for social their own futures, at a time when more companies the aim of using greater transparency to strengthen and environmental justice, than at any time since the are recognising the need to invest in smallholder mutual accountability. FAIRTRADE Mark was launched in 1994. farmer initiatives, is to highlight the important role of democratic organisations, such as co-operatives, in 2. Aligning the aims and objectives of all parties In the five years to 2012 the Fairtrade Foundation representing their members in planning, prioritising has been pursuing an ambitious strategy towards and implementing improvements. Examples identified While the different stakeholders in supply chains its vision that everyone, through their work, should in this report illustrate how partnerships with, and may share many long-term objectives, there are be able to maintain a decent and dignified livelihood investment in, smallholder organisations improves the also significant differences. For most businesses and fulfill their potential. The Tipping the Balance chances of interventions also delivering the economic smallholder farmers are little more than the first link strategy has extended the scope of Fairtrade to more return that business needs as well as supporting the in their product supply chains, whereas farming small farmers and workers and increased impact aims and aspirations of the families and communities families view trade not only as a means of generating for those already engaged with Fairtrade through concerned. This is the ‘win-win’ that typifies Fairtrade income but also of sustaining and developing the impressive growth in awareness of the FAIRTRADE at its best, reinforcing the business case for Fairtrade social and cultural fabric of their communities. Mark and sales of Fairtrade products. In 2011, public while bringing a business perspective to sustainable The earlier report identified different smallholder awareness of the FAIRTRADE Mark in the UK reached development work. strategies of strengthening their existing market 78 per cent and sales of certified products in the positions, diversifying their production, transitioning UK amounted to £1.3 billion1, generating over £20 to new ways of income generation, describing million in Fairtrade Premium payments to producers. these, respectively, as ‘hanging on, stepping up Over 300 of the 991 producer organisations certified and stepping out’. If the differences as well as the worldwide to international Fairtrade standards supply commonalities are not adequately understood there the UK market, which by most measures is the most is a risk that investments, for example in increasing successful of its kind in the world.2 productivity or quality, may not be aligned with the needs and priorities of smallholder groups and their In the next phase of its work, the Fairtrade wider communities. This can limit the chances of their Foundation will continue to scale up its work with success or undermine the efforts of smallholders to producers and companies, but will also explore make their own choices. broader, qualitative change in trading relationships between UK businesses and smallholder farmers 3. Beyond minimum standards in Africa, Asia and Latin America that support the development needs and aspirations of rural The activities needed to address points 1 & 2 sit

families and communities. An important part of the firmly in the area beyond compliance with minimum Oliva Kishero on her coffee farm in Uganda preparation for that work is to look at how smallholder requirements of Fairtrade standards for traders and

4 How businesses are going further to make international supply chains work for smallholder farmers How businesses are going further to make international supply chains work for smallholder farmers 5 Going further: information to understand problems and building up chains in which they have little or no information which are supplied mostly by smallholders, recognise questions for business the capacity of producer organisations to implement on the ultimate destination of their products make it that if their sector can’t deliver a decent income for plans to correct them and strengthen their operations impossible for them to hold retailers and brands to growers then few people will be growing those crops is a much more difficult and time-consuming process. account. There is a business case to be made for in ten or twenty years time. Despite a lift in prices over Based on these insights, this report discusses ways in Companies working most closely with producers noted companies to lead by example on this as it will provide the past five years in many commodities, most farmers’ which businesses can go further to make international the efforts required to develop a shared understanding traction for the investments companies are making experience is of 30 years of declining prices and long supply chains work for smallholder farmers and what of these issues and wanted those closer to the market in helping smallholders improve yields and returns periods of dramatic slumps to well below the cost of support they need from government, civil society to take more account of smallholder farmers’ context by raising productivity and quality, and to ensure that production and even now prices in real terms for most organisations and the Fairtrade system to do this. by making longer-term commitments and allowing a suppliers – all the way back to smallholder organisations crops remain far below those of the 1970s. This means In looking at how some progressive businesses are realistic period for investments to generate changes. – do not see pressure for greater transparency and that farmers are often sceptical about taking land out overcoming the barriers to closer engagement with traceability as simply aimed at increasing the power of production and replanting it for higher future yields smallholder farmers, the following questions have come 3. How can the transparency of supply chains be of buyers. Fair Trade Organisations advocate direct with no guarantee that they will be able to sell a higher to the fore. They are discussed at greater length in the increased for the benefit of all participants? relationships with smallholder organisations as the best volume at a good price. Although some companies body of the report and six case studies are presented way of ensuring mutual accountability, with several express concern that Fairtrade’s minimum price and as illustrative examples. The many different contexts in Transparency was mentioned frequently by commercial wishing to expand their service offer to companies, premium mechanism could act as a distortion of which smallholders operate, the different products they stakeholders and was prominent in developing the while the Ben & Jerry’s case study indicates the market dynamics if taken to scale, it is clear it can grow, and varying modes in which they are traded make case for a more holistic approach to supply and value opportunity to increase transparency and accountability provide incentives for investment, as the experience of it impossible to present one single best practice model chains in order for them to become more equitable while working through intermediaries. Liberation and Tate & Lyle Sugars demonstrates. Many that can be applied universally. Rather these insights and sustainable. This starts with traceability of the companies also had not fully appreciated the scarcity are presented to inform and inspire the debate that is origins and destinations of products which should 5. How can more and better partnerships be of accessible, timely and affordable financial tools for needed on this subject and offer potential directions for develop into increased transparency about what the developed to help smallholder organisations smallholder organisations. Prefinance has always been businesses wishing to take their commitments deeper. different parties bring and take to the value chain. develop their full potential through fair and a requirement of Fairtrade standards but while the Market demands for physical traceability of products is sustainable trade? supply of working capital through social lenders such as 1. How can the business case for investing in increasing as consumers express more interest in the Shared Interest and Oikocredit has increased it has not smallholder farmer organisations as social provenance of products and retailers and brands want The need for more and better collaboration to tackle done so in line with the growth of the Fairtrade market actors be better recognised and supported? to monitor the results of their interventions to improve sustainability issues was unquestioned by the and is not always sufficient to cope with periods of production practices, but there is even more pressure stakeholders interviewed for this report. The challenges volatile price movements. The role that democratic organisations play in helping for transparency around the flow of money, value of securing long-term product supplies while helping smallholder farmers take more control over their addition and impact between the parties at each link farmers play their part in this while coping with climate 7. How can Fairtrade standards and future, and invest in building sustainable local farming of the chain. The Fairtrade system itself is part of this change, food security and increasing scarcity of oil, communication around the FAIRTRADE Mark communities for the future, has long been recognised broader value chain and several businesses stressed water and other resources were recognised as too better support companies who go further than by the fair trade movement and in Fairtrade standards. the importance of robust information about how complex for any single actor to address effectively. minimum Fairtrade standards? The examples discussed in the main report, such as smallholder organisations used their Fairtrade Premium, There is a need for both good technical expertise to Tate & Lyle Sugars’ experience in Belize, show how especially those that received very large amounts such improve productivity, quality and sustainable agricultural The interviews demonstrated a wide range of needs and some mainstream companies are also embracing as the largest certified organisations working in sugar practices of individual farmers and of high calibre work expectations among companies of what the Fairtrade this approach while others are attracted by the faster and cocoa, as well as on the transactional costs and to strengthen the capacity of farmer organisations system should deliver in the future; indeed in several results of establishing their own groups to implement benefits of the Fairtrade system itself. to manage these processes autonomously and cases there was some confusion about what it currently improvement programmes despite the risks of independently. Interviews for this report identified provides. Examples of companies ‘going further’ than creating dependencies. 4. How can transparency be developed into mutual important learning from collaborations such as the minimum Fairtrade standards feature prominently in this accountability across the whole supply chain? work that Marks & Spencer and Finlay’s have done report and some companies suggested their practices 2. How can the different operating contexts of with DfID’s FRICH fund, the Co-operative Group’s should be made obligatory. This would create a more smallholder farmer organisations and large While transparency was raised frequently as a headline programme of support for smallholder organisations level playing field and reduce what they see as unfair brands and retailers be better understood issue by many stakeholders, further discussions and Cafédirect’s work with donors and farmers in competition from companies who do not invest to the and aligned? demonstrated that this is invariably a means to an end; São Tomé. same extent in producer support and capacity building, and the real objective is mutual accountability, including in sharing of information and assisting with access to The challenges of aligning the different timescales to sharing of effort, risk and reward. While companies 6. What economic interventions are needed finance. At the same time, no-one is seeking to add to which smallholder farmers and retailers operate were have legitimate interests in being able to assess the to support more sustainable sourcing the cost of the Fairtrade system at a time of growing cited by many companies who have to bridge this impact of Fairtrade Premium investments and other from smallholders? pressures on disposable incomes for most UK families. gap in supply chains. Retailers are typically making activities delivered by the Fairtrade system, there is less decisions about individual products and ranges on recognition of a similar desire among their supply chain Price stability remains important in enabling farmers As the Fairtrade system embarks on the process of the basis of a few weeks’ figures; indeed their ability partners to for greater accountability of the brands and to sustain investment in improved yields and quality, improving its work with smallholder farmers, it looks to respond quickly to changes in consumer demand retailers as the recipients of the largest share of the which, if they can sell the additional output at viable forward to a constructive dialogue on the issues and is a critical factor in the success of their businesses. final price paid by consumers. Smallholders have also prices, will significantly improve their overall returns. welcomes the ideas of its commercial stakeholders to At the other end of the chain, collecting and analysing raised this issue in the context that extended supply Most companies in products like coffee and cocoa, turn thinking into action.

6 How businesses are going further to make international supply chains work for smallholder farmers How businesses are going further to make international supply chains work for smallholder farmers 7 I. Introduction and context

This paper forms one part of an important population and the industrialisation of agriculture are The interviews and discussions undertaken for this that enables incremental change rather than a badge theme of work for the Fairtrade system the only pathways for development. This paradigm was report have highlighted the exciting opportunities of perfection or end goal. This is especially important aimed at making international trade a major cause of the erosion of the technical, financial that are emerging for the Fairtrade Foundation and for smallholder organisations who need a system that and marketing services on which smallholder farmers its partners to strengthen collaboration that furthers recognises their current realities as starting points for fairer for small farmers by building on depended and was in danger of becoming self-fulfilling. the goals of smallholder organisations, businesses, engagement rather than creating a high-bar that is the successes and learning of the past While it is now subject to greater questioning, it is consumers, civil society agencies and donors. Most impossible to achieve. The high standards achieved 20 years. still being pursued today in the grabbing of land from important for its mission to help smallholder farmers by many smallholder organisations are the result of smallholder farmers for large mechanised farms in many take more control over their lives and determine investment, usually over many years, to build capacity Since launching the FAIRTRADE Mark in 1994 in the parts of Africa and Asia. their own futures, at a time when more companies and apply the premium to development needs. UK and joining other national and regional Fairtrade are recognising the need to invest in smallholder However, the minimum criteria also play a crucial role initiatives to form a global system5 in 1997, the Fairtrade An important part of the preparation for that work is to farmer initiatives, is to highlight the important role of in providing a level playing field for producers, traders Foundation has achieved significant success in look at how smallholder organisations and companies democratic organisations, such as co-operatives, in and licensees of the FAIRTRADE Mark and as more developing a vibrant and dynamic market for Fairtrade can establish sustainable and equitable relationships representing their members in planning, prioritising and operators move beyond that minimum they question certified products in Britain that for some years has across highly demanding and fast-moving international implementing improvements. why their good practices should not become the norm been the largest in the world. In the five years to supply chains. This paper builds on a 2012 report by for everyone. While valuing both the simplicity and 2012 the Fairtrade Foundation has been pursuing an Twin7 that considered these issues from the perspective Examples identified in this report illustrate high recognition levels of the FAIRTRADE Mark, some ambitious strategy towards its vision that everyone, of smallholder farmer organisations and contributed to how partnerships with, and investment stakeholders are keen to see the Fairtrade Foundation through their work, should be able to maintain a decent a multi-stakeholder forum in May 2012. This phase of in, small farmer organisations improves communicate that while all Fairtrade products meet the and dignified livelihood and fulfil their potential. The the work has been developed through discussions with standards, many have additional ethical attributes and the chances of interventions delivering Tipping the Balance strategy has extended the scope commercial stakeholders and analysis of their feedback to help differentiate those within the overall category. of Fairtrade to more small farmers and workers and by senior management at the Foundation. both the economic return that business On the other hand, there is no desire for increased deepened impact for those already engaged with needs as well as supporting the aims complexity and the additional cost this could bring; Fairtrade through impressive growth in awareness of the Both pieces of work have highlighted an overarching and aspirations of the families and not only is there a basic cost of compliance but these FAIRTRADE Mark and sales of Fairtrade products. In need to take account of all the relationships that communities concerned. can be exceeded by the need to demonstrate and 2011, public awareness of the FAIRTRADE Mark in the make up supply chains and for all the parties to those verify compliance through internal control systems and UK reached 78 per cent and sales of certified products relationships to be able to work strategically towards This is the ‘win-win’ that typifies Fairtrade at its best – external audit. in the UK amounted to £1.3 billion6, generating over £20 their individual goals. For businesses these are to making the business case for Fairtrade while bringing a million in premium payments for producers. Over 300 of secure affordable, long-term supplies of the products business perspective to development work. The challenges facing all Fairtrade’s stakeholder the 991 producer organisations certified worldwide to they need, while farming families seek a standard of constituencies at this time cannot be underestimated, international Fairtrade standards supply the UK market. living and working that enables their communities Such collaborations depend on a better mutual especially as consumers’ living standards are squeezed to flourish, while sustaining their ecosystems. But understanding of the roles, capacities and restraints of by factors such as price inflation and the impact of In the next phase of its work, the Fairtrade Foundation these headline goals sit at the apex of the agendas the parties involved. Stakeholder interviews undertaken austerity in public spending and continuing uncertainty expects to deepen impact of Fairtrade for farmers of business and smallholder organisations and each as part of this study frequently mentioned the need for in financial markets makes investment decisions and and workers by continuing to scale up its work with have their own specific objectives for how trading transparency, information sharing and accountability as access to credit challenging for producers and the companies, but it is also keen to encourage broader relationships can be improved. Twin’s report identified a basis for constructive and informed dialogue across businesses they trade with. However, feedback from qualitative change in trading relationships between different ways in which smallholder organisations the relationships that make up supply chains. This commercial stakeholders indicates that there is a UK businesses and smallholder farmers’ organisations engaged with Fairtrade with some looking to strengthen report is offered as a stimulus to those dialogues and greater shared perspective on addressing the major in Africa, Asia and Latin America to support the their existing market positions while others were looking debates, as well as an illustration of some of the ways global sustainability challenges, including the need for development needs and aspirations of rural families to diversify or to help their members transition to new that companies are helping their smallholder suppliers social and environmental justice, than at any time since and communities. The timing of this work is opportune ways of income generation, describing these strategies overcome the barriers that exclude or marginalise the FAIRTRADE Mark was launched nearly twenty as there is increasing recognition and interest from as, respectively, ‘hanging on, stepping up and stepping them from profitable markets. Progressive companies, years ago. business, government and development agencies in out’. Similarly the commercial stakeholders surveyed as the case studies illustrate, have moved on from the role smallholder farmers can play in a food and for this report each had their own priorities under a regarding these interventions as merely philanthropic This report identifies the issues that are important farming system that addresses the needs of a growing generic approach of sustainable sourcing, such as or part of their corporate social responsibility and now to commercial stakeholders and highlights some population and takes account of food security, climate ensuring traceability, improving productivity and quality regard them as prudent investments in the long-term innovative practice in addressing them. It does not change and key resource scarcities, notably water and and understanding the social and environmental impact sustainability of their business operations. seek to provide a precise prescription for resolving oil. Current attitudes towards smallholder agriculture of their supply chains so they can manage risks to the challenges; they are too diverse and complex contrast dramatically with those prevalent for much supplies and brand reputation (described by many This is exciting as it means some companies are driving for that. Rather it aims to provide a starting point for of Fairtrade’s history. For the past thirty years it has stakeholders as a ‘hygiene’ issue). better practice and going further than the minimum further dialogues and debate about how the Fairtrade been hard for smallholder farmers and their partners requirements of Fairtrade standards. It is important to Foundation and its partners and stakeholders can ‘go to challenge the assumption that urbanisation of state that the standards have always been intended as further’ to deliver a better deal for smallholder farmers. a minimum, initial framework for continual improvement

8 How businesses are going further to make international supply chains work for smallholder farmers How businesses are going further to make international supply chains work for smallholder farmers 9 II. Methodology III. S ummary of the perspective of smallholder farmer organisations

This report is largely based on semi- research from last year, and this report is a synthesis In the previous phase of this project, structured interviews by KPMG on of those processes. This report has drawn on views the Fairtrade Foundation commissioned • Price is just one factor in determining overall returns behalf of the Fairtrade Foundation, of commercial partners to examine how to make Twin to explore the perspective of to farmers. The yield they get from their farms, the with 11 companies who currently work international supply chains work for smallholder farmers proportion of this that reaches the market (post farm from a business perspective, but may not include more smallholder farmer organisations losses due to spoilage can be high) and control of with Fairtrade. operational insights from partners. These have been on their experience and expectations quality through growing, harvesting and distribution captured in a separate report prepared by KPMG for in engaging with international processes are all important in determining the The companies were selected to provide a range of the Fairtrade Foundation. supply chains. overall net returns to growers. Interventions aimed experiences on working with smallholder-based supply at increasing yields depend on concurrent building chains covering the spectrum of supply chain actors Specific comments in this report are not directly of the processing, trading and financial capacity from commodity brokers, manufacturers, and retailers. attributed to companies or individuals except for the The report looked at six smallholder farmer of co-operatives, all of which require a degree of The interviewees also comprised both dedicated Fair case studies presented in the report. However, a list organisations producing cocoa, tea or groundnuts price stability. Trade Organisations and businesses with a broader of interviewees is provided at appendix III and the across three African countries (Cote d’Ivoire, Kenya, commercial focus, as well as consumer-facing brands Fairtrade Foundation is grateful for the time and thought Malawi). It identified that each had their own objectives • Smallholder organisations welcome the development and business-to-business traders. This range is they gave to the interviews and their collaboration with and priorities in engaging with Fairtrade which of physical traceability of products but many illustrated by the chart below. this project. included strengthening their existing market positions, placed greater importance on strengthening diversifying and transitioning to new ways of income the accountability and transparency of trading The records from interviews conducted by KPMG have generation (described respectively as ‘hanging in, relationships and building two-way connections been analysed further by the Fairtrade Foundation, stepping up and stepping out’). The report noted that between producers and consumers. cross referenced with themes emerging from Twin’s livelihoods approaches to development stress the importance of peoples’ ability to engage and influence These issues were all apparent in the discussions policies and processes that affect their lives as key with commercial stakeholders undertaken for this determinants of vulnerability or security, which are as report, although they clearly experience them very Company Consumer Retailer Fair Trade Intermediary Product focus (1) important in the reduction of poverty as an increase differently from farmers and co-operatives. This was brand Organisation trader in income and assets. In this context, the report most apparent in views of the relationship of price, highlighted the following insights on how trading productivity and quality, with farmer organisations Armajaro ü Cocoa relationships can contribute to the empowerment placing a high importance on price levels and stability. Ben & Jerry’s ü Various of smallholder farmers. On the other hand some buyers’ views are that the gains from being able to sell more through increasing Cafédirect Coffee, tea and cocoa ü ü • Buyers and traders need to go beyond complying productivity and quality and reducing post-farm losses with Fairtrade standards if their relationships with (which could increase volumes by a factor of two Co-operative Group ü(3) ü Various smallholder producers are to promote empowerment or three) would far outweigh any potential increase Finlays ü Tea and development. This requires a shift in attitude and in price (which is likely to be a small percentage of perception with buyers regarding farmers as active current levels). These views are by no means mutually Liberation ü ü ü Nuts partners and not passive beneficiaries. exclusive but buyers need to appreciate the fears of Marks & Spencer ü(3) ü Various smallholder organisations that there may be no demand External support is essential if the capacity of farmer for additional volumes or that sector wide increases in Mars Cocoa • ü co-operatives is to be developed but must build volume may actually cause a price slump (as occurred Nestle ü Cocoa autonomy and independence to avoid creating in coffee in the 1980s), while smallholder organisations unhealthy dependencies. need to take account of buyer concerns that price Tate & Lyle Sugars ü ü Sugar protection has sometimes subsidised inefficiency and Buyers and traders need to understand the that this is ultimately unsustainable. It is clear from Traidcraft ü ü(3) ü Various • constraints faced by co-operatives of smallholder both pieces of work that both smallholder farmer Tropical Wholefoods(2) ü ü ü Fruit and nuts farmers in balancing the need to retain cash for organisations and the traders they sell to would benefit business investment against the distribution of profits from a greater understanding of the realities facing to their members. These decisions depend heavily on their trading partners and that better two-way dialogue (1) Product focus refers to the focus of the interview for this project. (3) Retailer own label The business interests of most companies, and their engagement (4) Traidcraft is not a conventional retailer, but does sell products access to affordable and appropriate financial tools. and information sharing is crucial in addressing the with Fairtrade, is broader in most cases directly to consumers via its Fair Trader network, online challenges of making international supply chains work (2) Tropical Wholefoods were not interviewed by KPMG but were and catalogue effectively for smallholder farmers and companies. contacted by Fairtrade Foundation during a later stage of the work

10 How businesses are going further to make international supply chains work for smallholder farmers How businesses are going further to make international supply chains work for smallholder farmers 11 IV. Fairtrade, smallholder farmer organisations and a sustainable food system

Smallholder organisations have been a accused of seeking to artificially protect smallholder and the livelihood of the poor, and invigorate production in 1979.12 Since the world’s 500 million smallholder particular focus of Fairtrade’s work from farmers from market forces by subsidising outmoded and sustained economic growth’.8 The document also farms provide up to 80 per cent of food in developing its very outset. and inefficient modes of production. called for improved access to local and global agri- countries there is enormous potential to replicate this food markets, more transparent and open trading achievement in other parts of the world. Fairtrade’s early years were thus dominated by the need systems and practices that contribute to the stability Although Fairtrade also seeks to strengthen the position to counter these arguments, primarily by developing its of food prices and domestic markets, improved of employed workers and certifies larger plantations framework for sustainable people-centred agriculture access to information and enhanced interactions ‘We must empower smallholders to in some products, it has always been an explicit as its scope was extended to more products, but among farmers and experts through education and negotiate decent terms with buyers, priority of Fairtrade to address the challenges faced by also in acting as advocates and educators on the extension services. The role of smallholder agriculture and we must explore the most inclusive smallholder farmers in securing sustainable livelihoods importance of smallholder farmers as part of viable rural in enabling women, young people and indigenous by accessing global markets and this remains one of its communities. For example, the minimum price that is people in providing routes out of the poverty to which business models. Fair contracts should defining features in today’s broader sustainability arena. specified in the standards for most Fairtrade products they were disproportionately vulnerable was also include minimum price guarantees, In some products, such as coffee, cocoa and nuts, the has often been incorrectly presented as a stimulant to highlighted in the communiqué. visual demonstration of quality tendency for smallholders to be marginalised by larger over-production in a similar way to the EU’s Common standards, the provision of inputs at actors in international supply chains (whether by agro- Agricultural Policy (prior to the Agenda 2000 reforms), The UN’s special rapporteur on the right to food or below commercial rates, tailored industrial plantations, large commodity traders or global ignoring the key difference that the Fairtrade minimum elaborated on these calls by highlighting the importance dispute settlement mechanisms, and brands) means that the scope of Fairtrade standards price only applies to contracts for product that will of the political economy of food systems and the is limited to smallholder farmers. On the other hand, be sold in the Fairtrade system. Unlike subsidies or question of bargaining power, noting that small farmers the possibility to set aside a portion of products like bananas and tea have been established charitable support, Fairtrade represents an investment face the unfairness of ‘buying their inputs at retail land for food crops to meet the needs within Fairtrade as a mixed model, recognising that a by producers in which they incur the costs of complying prices but selling their crops at wholesale prices’. In of the family and the community. diverse supply base better serves market needs and with the standards and for achieving certification but order to have a stronger position in markets they need Without these checks and balances, allows workers in plantations to share the benefits seek to recover these through additional revenues to form co-operatives and unions and he argued that the door is left open for produce to be of the Fairtrade system, while Fairtrade also certifies generated from Fairtrade sales. Fairtrade’s minimum governments should involve such organisations in the summarily rejected, for farm debt to growers in sectors that operate solely through hired- price and premium arrangements facilitate investment, design and implementation of public policies. In his labour plantations, such as cut flowers. In reality, the whether in social, economic or environmental report to the 66th Session of the United Nations General spiral, for labour to be sub-contracted needs of smallholder farmers and farm labourers cannot improvements, not only in contributing to capital costs Assembly in 2011, Dr Olivier De Schuetter focused without regulatory oversight, and for a always be compartmentalised and the income of rural but in reducing the uncertainty around future revenues. on the need for equitable value chains and alternative region’s food security to be undermined families often comprises production from their own land While in recent years there has been some halt to the business models in supporting the right to food. by production of export-oriented as well as wages from off-farm employment. Fairtrade relentless downward pressure on commodity prices of His office’s summary of the report entitled Farmers cash crops at the expense of all else. has thus recognised the need for a pragmatic approach the past 30 years, this has by no means reversed the must not be disempowered labourers on their own Farmers should be encouraged to to engaging with different scales of production but overall decline in value in real terms. Moreover, price land, provides a striking endorsement of Fairtrade’s remains committed to strengthening the position volatility has increased and the uncertainty is a major approach (and includes a reference to Divine Chocolate consider forming co-operatives and of smallholder farmers within the sectors that are barrier to farmers investing in higher productivity or as an example of a Fairtrade business model that joint ventures, where they can club important to them. post-farm processing and distribution. empowers farmers). together and access markets. We must empower farmers to consider business This maintains the spirit of the original Fairtrade By contrast the contribution smallholder farmers can In a speech to the World Farmers’ Organisation, the models allowing them to rise up the label (the Max Havelaar Seal launched in the make to a sustainable agriculture and food system that President of the International Fund for Agricultural value chain. Above all, we must Netherlands in 1988), which was a specific response is capable of feeding the expected global population Development, Kanayo Nwanze, was unequivocal on to the problems experienced by Latin American coffee of 9 billion by 2050 within the capacity of the global the same point, saying ‘the best way to create the shed the straitjacket that says that co-operatives following the collapse of the International ecosystem, is now widely recognised. In 2009, the G8 conditions for poor farmers to grow their businesses agricultural development can only Coffee Agreement that had helped to stabilise prices countries pledged to invest $22 billion in agriculture is to support and work with their organisations.’11 occur through large-scale, top-down for the previous 30 years. That collapse, triggered in the developing world to boost food security. investments. With the right support and by the departure of the USA (then, as now, the Smallholder farmers were mentioned extensively in Vietnam provides a telling example of how smallholder encouragement, farmers can drive the largest importer of coffee), symbolised the so-called the outcomes of the Rio+20 summit in June 2012 farmers can prove a potent force for development. It change themselves.’10 Washington consensus approach to macro-economics with Article 52 of the Outcome Document recognising has gone from being a food-deficit country to a major

and international trade relations in which agriculture that ‘small-scale farmers and fisherfolk, pastoralists food exporter, and is now the second largest rice

was seen as ‘the industry of poverty’ from which people and foresters, can make important contributions to exporter in the world, largely through development of Dr Olivier De Schuetter, United Nations General would escape through opportunities for development sustainable development through production activities its smallholder agricultural sector. In 2007, the poverty Assembly, 2011 created by free trade. In this scenario, Fairtrade was that are environmentally sound, enhance food security rate fell below 15 per cent compared with 58 per cent

12 How businesses are going further to make international supply chains work for smallholder farmers How businesses are going further to make international supply chains work for smallholder farmers 13 V. KEY Insights from stakeholders on engaging with smallholder farmers

1. A holistic view of supply chains have a role as advocates on their behalf) are concerned thousands that now carry the FAIRTRADE Mark and that pressure from companies may undermine the felt that they faced unfair competition from other While stakeholders primarily discussed their own democratic nature of their organisations and the licensees who did not invest in producer support engagement with smallholders, it was clear that even efforts of farmers to determine their own future, while and could apply these savings to promotion of their bilateral transactions have some dependencies on companies are seeing mixed results from investment in products. On the other hand, many stakeholders third parties, either as end customers or as providers farmer improvement programmes which may reflect a are aware that the efforts that Fairtrade (and other of services to buyers or sellers. The decisions of lack of alignment. In Fairtrade’s experience, the success certification schemes) have made to ensure robust retailers or brands in anticipating or responding to of any interventions among smallholder farmers and credible processes in earlier phases of work changes in market demand have the most impact on depends on alignment with the goals of the families have sometimes led to an over-reliance on standards those further up the supply chain. Many stakeholders and communities involved and that is why its standards and auditing which have sometimes added cost and operating in the middle ground between the market place a high priority on supporting democratically- complexity in excess of the value they have delivered. actors and smallholder farmers felt that the former run organisations of small farmers that involve their This issue was acknowledged by a recent report needed a better understanding of the impact of their members in decisions. funded by The David and Lucile Packard Foundation, actions but also saw great benefit from smallholders the Walton Family Foundation and Mars, Incorporated knowing more about the markets in which their 3. Beyond minimum standards into the roles and limits of certification which noted products are sold. Access to finance, inputs and that ‘certification is best seen as one instrument in technical services are also critical success factors a portfolio of tools... and it is effective in bringing for smallholder organisations but are not often taken Alongside the first two themes above, discussions about rapid changes when market-leading firms account of in transactions. The supply chains that with commercial stakeholders also repeatedly use it to verify and enforce... better practice connect smallholders to mainstream consumer markets touched on the relationship of the issues involved and performance’.13 are often a web of interdependent relationships and with standards and certification and it is clear that there is an increasing need for all parties to see the good practice occurs in areas not covered by the bigger picture as well as their own part within it. The minimum Fairtrade standards, for two reasons. Firstly experience of Fair Trade Organisations in reducing their it is hard to actually certify a relationship between two reliance on intermediaries (or in the case of Cafédirect parties, let alone those applying across a complex avoiding their use entirely) shows how this can add multi-stakeholder supply chain. Although Fairtrade value and while buying direct from smallholders may has gone further than most systems in determining not always be practical in very complex supply chains, aspects of the transactions between buyer and seller, the two ends of the chain can still communicate and by stipulating minimum guaranteed prices (in most share information more than is the norm currently. Many Fernando Calle Orozco picking products) and Fairtrade Premiums, like other social stakeholders also felt that there was a need to move cocoa, CEPICAFE, Peru and environmental systems, its standards are oriented beyond improving specific practices in existing supply around specific operators who are then certified chain models and move towards new structures based against those standards. Secondly, standards have on ensuring mutual accountability and equitable sharing from global sustainability challenges such as climate always been intended as a framework for continual of risk, effort and reward. change, food security, growing population numbers improvement that enables incremental change rather and scarcity of resources like oil and water. The new than offering a badge of perfection or end goal. This 2. Aligning the aims and objectives approach presents huge opportunities for business is especially important for smallholder organisations of all parties partnerships with Fairtrade to go further to improve the that need a system that recognises their current livelihoods of smallholder farmers, with the Fairtrade realities as starting points for engagement rather than system itself operating a careful balance, providing creating a high bar that is impossible to achieve. The Recent years have seen companies adopt a pro- more efficient and effective services to companies while two factors mean that some companies are applying active approach to sustainable sourcing to their retaining smallholders and consumers as the ultimate Fairtrade criteria more stringently than is required by whole business. By contrast, in Fairtrade’s start-up ‘customers’ of its work. Clearly everyone wants to the standards themselves, while others are creating phase, companies often looked to it to provide a see smallholder farmers enjoy a decent standard of their own rules for aspects of trade that have never ‘ready-made’ alternative to their conventional offering. living from supplying products to international markets been explicitly part of the standards. The change has been driven partly by the success but while this is an end goal for many companies, of Fairtrade (and labels such as MSC and FSC) in for smallholders it is a means to an end. For farming Inevitably, some of the companies operating in these enabling consumers to express their demand for families, trade is not just a means of generating income areas feel that some of their practices should be products that are fair to people and planet, but also but also of sustaining and developing the social and made obligatory as part of a process of continual Cane harvesting, Belize Sugar by the increasing recognition among business leaders cultural fabric of their communities. Smallholder improvement. Those companies expressed difficulty Cane Farmers Association of the long-term threats presented to their business organisations (and the Fair Trade Organisations that in differentiating their products among the many

14 How businesses are going further to make international supply chains work for smallholder farmers How businesses are going further to make international supply chains work for smallholder farmers 15 VI. How business can go further

Within the three key themes, a number of specific As previously mentioned, this dilemma is most apparent and time-consuming process to collect and analyse issues were raised by several stakeholders as in the different perspectives on price, productivity and information, to understand problems and to build the areas where practice beyond the current minimum quality in determining overall net returns for farmers capacity of their members so as to implement plans requirements of Fairtrade standards is needed, or where and there are concerns that smallholders will either to correct them and strengthen their operations. One changes to the way the Fairtrade system currently not commit to productivity programmes that they have retailer said that increased exposure to smallholder operates could support better practices. not helped create, or that they will be taking decisions organisations and the government and commercial without fully assessing the risks. There are grounds organisations they have to deal with to export The many different contexts in which smallholders for these fears. In many coffee-producing countries products, had led them to appreciate the challenges operate, the different products they grow and modes higher productivity has been achieved in part by of overcoming entrenched business practices and in which they are traded make it impossible to present increasing specialisation and monoculture. As a result, structures. They had become more engaged in a single best practice model that can be applied more smallholders produce less of their own food and rely on the producing country partly because of a risk of universally. Rather they, and the case studies developed their income from coffee to buy supplies. In Nicaragua their Fairtrade suppliers being decertified and had out of the stakeholder discussions, are presented and much of Central America, coffee farmers face subsequently secured resources for investment in the as illustrative examples to inform and influence the three months when income from their coffee harvest skilling-up of employees and building organisational further discussion and debate on how business could (which ends in May) is depleted but the price of their capacity in order to maintain certification. go further in their engagement with smallholder basic food staples (which are not harvested until the farming communities. autumn) are very high. This period is known locally as ‘los meses flacos’ or the thin months and research by 1. The business case for investing the International Centre for Tropical Agriculture (CIAT) in the role of smallholder farmer among 179 farming families showed that farmers were organisations as social actors experiencing hunger or going into debt to buy food, or both. While some community programmes and needs to be better recognised co-operatives, including co-operatives CECOCAFEN and supported and PRODECOOP and NGOs like Save the Children and Catholic Relief Services, have started to address The role that democratic organisations play in helping this by supporting coffee farming families to develop smallholder farmers empower themselves and take food production and alternative income programmes,14 more control over their future has long been recognised there is clearly a case for business to understand the by the Fair Trade movement and in Fairtrade standards. need to balance increased production of export crops Smallholder organisations have many different roles with local food security. in developing countries – as democratic bodies accountable to their members they are part of a strong Dickson Chatuwa picking tea, Sukambizi, Malawi Another issue raised by stakeholders was around use of civil society and as trading businesses they are part the Fairtrade Premium and the need for companies to of the private sector. Fairtrade organisations are also ensure that their interest in supporting particular types investing their premium in the provision of services that in Belize (see case study). Although not interviewed by of development projects is properly aligned with the may complement or fill gaps in provision by the public KPMG for this report, the Cocoa Partnership developed choices of local people, for example between investing sector. This means that they have to balance different by Cadbury/Mondelez (now part of their Cocoa Life in improvements to health or education facilities. demands and ensure that they are consulting and initiative) recognises the importance of improving involving their members in decisions. As Twin reported, the livelihoods of cocoa farmers and cocoa growing 2. Large brands and retailers need this balancing act extends to the need to retain cash for communities – the smallholder is central to this vision. to have a better understanding business investment against the distribution of profits to The Cocoa Partnership has supported farmers to of the context in which small their members. organise into strong smallholder organisations through community action plans. They have done this with the farmer organisations operate Fairtrade believes that this ensures better long-term help of their implementing partners (UNDP, VSO and outcomes as projects are more aligned with the goals of Care International). Alternative approaches carry risk of As previously mentioned, many stakeholders felt smallholder farmers and they feel a sense of ownership failure because of lack of alignment with the needs and that there was a lack of understanding at both the in implementing them. Twin’s report stressed that priorities of farming communities themselves and so an farmer and retailer ends of supply chains of the successful projects were ones in which smallholders inclusive approach is essential. This takes time to do context in which the other end operates. This was felt were active partners rather than passive beneficiaries and so is a conundrum for companies seeking faster most acutely in terms of decisions made by retailers

and this is borne out by the experience of Tate & Lyle results in the short term. and brands on real-time market information while Isaac Frimpong, member of Kuapa Kokoo, Ghana smallholder organisations face a much more difficult

16 How businesses are going further to make international supply chains work for smallholder farmers How businesses are going further to make international supply chains work for smallholder farmers 17 Companies who work through intermediaries also discussions were significant in developing the While traceability deals with the physical movement have an imperfect picture of the investment made by analysis that a more holistic approach to supply of goods across the supply chain, transparency about smallholder organisations in complying with standards and value chains is required in order for them to costs and the flow of money between the parties at and obtaining certification and the time needed to become more equitable and sustainable. Greater each link of the chain is closely connected to this and recover these costs through additional income streams, traceability of the origins and destinations of products was given a lot of attention in these discussions. The whether through higher prices or Fairtrade Premium. and increased transparency about what the different Fairtrade system itself is part of this broader value Several companies praised the work of Fairtrade parties bring and take to the value chain are both chain and is also under increasing scrutiny for the Liaison Officers in helping smallholder organisations prerequisites for a new form of governance of value financial benefits that companies pass to smallholder provide education and guidance to their members chains that is based on mutual accountability for organisations by paying the Fairtrade minimum price about this, so they can make an informed decision that sharing of effort, risk and reward. This is fully aligned and premium and for the money that the system ensures effective buy-in and long-term commitment. with the finding by Twin that smallholder farmers receives from smallholder organisations and companies saw physical traceability of products as a means in certification and licence fees, as well as from donors 3. Transparency of supply chains of strengthening accountability and transparency for development work with smallholder farmers. be increased as a tool for all of trading relationships and building two-way Companies interviewed for this report expressed participants connections between producers and consumers. concern that it was not easy to understand these flows of money, how they were used and how the value Most of the companies interviewed for this report received can be measured, with some suggesting new Transparency was a factor mentioned frequently by accept that physical traceability as a norm for products toolkits were required to do this more effectively. This is commercial stakeholders, both pro-actively from their that are produced by hundreds of thousands of increasingly important as executives in large companies perspective and in response to the remarks from Twin’s smallholder farmers will take time to develop but that implement sustainability programmes with smallholder research among smallholder organisations. These it remains an important long-term goal in addressing farmers either directly or in partnership with other standards and certification schemes, in addition to Fairtrade and have to justify their investment decisions

Fayson Tchale picking tea, Malawi to boards and shareholders. Companies placed huge importance on the need for better information about how smallholder organisations used their Fairtrade Premium, especially those that received very large amounts such as the largest certified organisations working in sugar and cocoa, as well as on the costs, expenditure and benefits of the Fairtrade system. Marvin Cascante Lobo, coffee farmer, Costa Rica 4. Transparency is a means to a greater end of mutual consumers’ expectation about the provenance of accountability across the whole products, managing risk along supply chains, and for companies to understand the results of their supply chain interventions to improve production practices. Meanwhile implementation of physical traceability has As mentioned in point 3 above, traceability and to take account of the burden of administrative costs transparency are tools to build accountability and when on those who have already invested in complying with companies questioned the transparency of financial standards such as Fairtrade and there was widespread flows to suppliers of products and to external actors support for Fairtrade’s approach to balancing this such as those in the Fairtrade system, they are really issue through the use of mass balance (more details looking to hold those recipients to account for delivering in appendix I). However, there is a need for greater value and impact. This is a legitimate concern on the recognition of traceability as not a one-way but a part of commercial stakeholders but there was much two-way process between producers and companies less recognition of how market-based companies, at the other end of the supply chain. Liberation’s work especially the brands and retailers who receive the with NASFAM in Malawi and Traidcraft’s project with largest share of the final price paid by consumers, can smallholder tea farmers in Malawi demonstrate the be more accountable to their supply chain partners. value of feeding back information from the market in efforts to improve quality.

18 How businesses are going further to make international supply chains work for smallholder farmers How businesses are going further to make international supply chains work for smallholder farmers 19 Companies need to recognise that there is a powerful find it harder to supply large volumes of fruit with the Brands and retailers also need to lead by example in business case for a new approach to value chains same level of consistency from hundreds of individual developing genuine accountability or there is a risk based on equity and mutual accountability. farmers as larger plantations do from just a few packing that their demands for transparency will be seen as stations. This often leads to quality claims against a case of ‘do as we say, not as we do’. For example, This will provide traction for the investments companies smallholder organisations who struggle to understand companies interviewed for this report expressed are making in helping smallholders improve yields and why this has happened since they thought the fruit that frustration at the difficulty of obtaining information returns by raising productivity and quality. There has left their farms was of excellent quality. Banana co- on how smallholder organisations used the Fairtrade been a well-recognised development of stakeholder operative leaders who have had the opportunity to visit Premium. However, Twin’s report had identified relations in corporate social responsibility work from ‘tell UK supermarkets and ripening plants in Britain and see that smallholder organisations feel there is little me to show me to involve me’ and smallholder farmers what happens to their fruit after it has been exported, understanding among their trading partners about the deserve the same respect and need to understand have reported a much better understanding of the need tensions they face in balancing the different needs of why they are being asked to do things in a particular for precise specifications and can then implement more their members in distributing surplus cash, building way rather than just being told to do so. Although effective training of their farmer members, resulting the capacity of their organisations and investing the not interviewed for this report, examples from the in improved quality and lower rejections of fruit after Fairtrade Premium. There is a significant risk in these connections established between smallholder banana shipping. Many banana producers would also like to situations of smallholder organisations being influenced farmers from the Windward Islands and Dominican take this issue further and have a dialogue about the by their trading partners, with all good intentions but Republic and UK fruit importers help to illustrate this. cost of the current requirements in wasting a significant the risks of unintended consequences or a dependency A challenge for large supermarkets in buying bananas amount of bananas both at source and further down the trap. More direct supply chain relationships could from smallholder organisations is that they will inevitably supply chain, increasing food waste. lead to greater shared understanding between trading partners. Fair Trade Organisations continue to advocate their model of direct relationships with smallholder organisations as the best way of ensuring mutual accountability and several would like to expand their service offer in this area to companies. While large companies are doubtful that they could buy more directly from smallholders, this was often presented in terms of how unrealistic it would be to buy from ‘thousands of individual farmers’, with much less recognition of how smallholder organisations could provide a more manageable supplier base. In contrast, Ramigia Moya, cocoa farmer and member of CONACADO the model of supply chain management that Ben & co-operative, Dominican Republic Jerry’s have adopted that involves Sustainable Harvest and Tropical Wholefoods as intermediaries with broader roles than simply sourcing and supplying product, is an too complex for any single actor to address effectively interesting model in this regard. and need a range of support services. It’s also clear that while a trading relationship provides a good foundation 5. More and better partnerships for identifying barriers to more and better business and are crucial to help smallholder a framework of mutual interest to tackle these, there is farmer organisations develop also a need for other actors to be involved. their full potential in fair and Partnerships with government and donor institutions sustainable trade play a very important role in providing resources for projects that may otherwise be too risky for most Probably the most common feature emerging from commercial businesses to undertake alone. DfID’s examples of successful engagement with smallholders FRICH fund is a prime example which has been taken offered by commercial stakeholders was the up by several companies interviewed, with a number involvement of third parties in collaborative work. It is of projects that have helped smallholder farmers clear that the challenges of securing long-term product from countries marginalised through problems such supplies while helping farmers play their part in this as conflict or natural disasters establish or regain

Nofita Chikodzera tends her groundnut crop, Malawi while coping with climate change, food security and access to global markets. Public investment also increasing scarcity of oil, water and other resources are provides the means for companies to engage with such

20 How businesses are going further to make international supply chains work for smallholder farmers How businesses are going further to make international supply chains work for smallholder farmers 21 knowledge and experience is in short supply. There Nevertheless, some companies interviewed for this that smallholder producer organisations invested over Joyce Line Joseph works on Stephen Best’s farm as a packer. Steven Best is a member of Winfa, St Lucia were calls in the interviews for the Fairtrade system to report continue to reflect and endorse the free market 50 per cent of Fairtrade Premiums they received into develop better matchmaking services that could help model and claim that it would be impossible for them productivity, processing and business improvement connect different providers with potential clients for to source effectively at the scale required for their activities.19 However, their concerns are that there is no their products and services both within supply chains businesses outside of conventional commodity markets guarantee that there will be buyers for the extra volumes (e.g. to help source specific product requirements) and for products like coffee and cocoa. There remains they grow, or that current price levels will be sustained alongside the supply chain (to find the right service concern amongst some respondents interviewed that if supply was increased. While agricultural commodity providers to tackle improvements).15 Several companies the minimum Fairtrade price and premium taken to prices have generally increased in the last few years, also highlighted the increasingly effective role played scale could result in a distortion of market dynamics, this has by no means reversed the unremitting decline by Fairtrade International’s Liaison Officers in this although they would be prepared to see these as experienced in most sectors over the past 30 years regard. Both Fair Trade Organisations and Fairtrade temporary and conditional market incentives linked to and many prices in real terms remain at or below the Liaison Officers are also recognised as agents who can improvements in productivity or quality. Companies levels of the 1970s. For those interested in increasing support smallholder organisations to build their capacity trading with cocoa farmers in Ghana and Cote d’Ivoire yield and productivity, as well as stronger and more to manage these processes autonomously, and thus placed higher importance on the potential for doubling long-term commitments from the market to support minimise the risks of creating dependency that were or tripling yields through technical improvements and investment by smallholder farmers, their organisations highlighted by Twin in their report. suggested that Fairtrade should seek to incentivise need, at the same time, to develop their processing, these so that farmers could increase their incomes by trading and financial capacity and (as Twin reported) 6. Sustainable sourcing needs to selling more even at conventional market prices. these also require a degree of price stability. be supported by appropriate economic interventions rather However the perspectives of smallholder farmers in the This is why Fairtrade has always recognised that the global South reveal a more complex dynamic at play. improvements and best practice envisaged by ethical than relying solely on market Twin’s research showed that farmers fully understand or sustainability standards require additional resources mechanisms the maths behind the argument that productivity may to fund the changes, and this is why it has sought to be as, if not more, important than price in increasing incorporate a minimum price guarantee and premium There has always been fierce debate around Fairtrade’s their overall net returns. Indeed, Fairtrade’s recently payment into its trade standards. approach to how smallholder organisations can secure published monitoring and evaluation report indicated fair prices in global supply chains for their crops. The first Fairtrade product label16 was established as a specific response to the impact on smallholder farmers Water pump funded by Fairtrade projects without being restricted by their own sourcing of the International Coffee Agreement in 1988 and cocoa sales, CONACADO, Dominican Republic considerations so that new opportunities for producers instituted the minimum guaranteed price and premium can be developed. This is apparent in the consortium- which have remained a constant part of Fairtrade project to assist smallholder coffee growers in the standards. For most of its history, this has placed Democratic Republic of Congo realise the value of their Fairtrade in direct opposition to prevailing policies speciality coffee. The project has involved Sainsbury’s, of rapid liberalisation of markets, a position that has Twin Trading and Finlays and has resulted in coffee often been misconstrued as opposition to free trade being sold to Belgium, USA and Japan as well as to per se rather than concern about the impact on the the British supermarket. Similarly, Marks & Spencer’s poor of dogmatic and over-rapid liberalisation. These project with Iria-ini Tea Factory (see case study) is a concerns are now expressed more widely by prominent multilateral partnership and has opened up market economists than was the case for most of Fairtrade’s opportunities beyond Marks & Spencer’s own stores. history. For example, Cambridge University Professor Ha-Joon Chang has pointed out that all of today’s Fair Trade Organisations also play an important ‘developed countries’ built their national industries role in facilitating partnerships between smallholder through protectionism and that it is unfair of them to organisations and mainstream businesses by being ‘kick away the ladder’ from developing countries by able to understand and communicate the different preventing them from doing the same.17 Former Chief perspective of the parties and to bridge the gaps Economist of the World Bank, Joseph Stilgitz has also in understanding. Their experience of working with criticised the way poorer countries have been pushed organisations to build capacity in a sustainable way by institutions like the International Monetary Fund to through education and dialogue on issues such as liberalise markets without first having the degree of gender awareness as well as providing appropriate market information and institutions available to richer technical support looks like an increasingly valuable countries, and the disastrous impact of these pressures asset in a commercial environment where that on poverty.18

22 How businesses are going further to make international supply chains work for smallholder farmers How businesses are going further to make international supply chains work for smallholder farmers 23 The different perceptions on price stability are of course that smallholder organisations need to make in their 7. Increasing recognition and trading companies. Applying simple standards too not unique to Fairtrade, or even to agriculture, and are processing, distribution and marketing capacities communication in relation to rigidly and inflexibly makes the system over-complex dealt with in other sectors by ensuring good access to need a wider range of financial tools and more joined- businesses going further than and expensive for operators and tackling this has the right financial tools. The lack of access to affordable up thinking so that long-term loans for structural Fairtrade minimum standards been the focus of recent work in revising standards for credit by co-operatives was why Fairtrade standards improvements do not weaken an organisation’s balance smallholder organisations. The new framework, a set of have always aimed for buyers to provide pre-finance sheet and limit its ability to secure working capital. guiding principles, simplifies core compliance criteria for their contracts on request. As with the Fairtrade Recognising the need for new credit mechanisms, Companies who go further than minimum Fairtrade and provides a template for smallholder organisations to minimum price, pre-finance was a vital tool during the Fairtrade International has now partnered with standards need more recognition and support from orient certification around their own development plans, years of low prices but companies are recognising the the Grameen Foundation and Incofin Investment the Fairtrade system. This might come from different while requiring some changes across the range of need for a broader range of financial tools in the current Management to establish a new Fairtrade Access Fund, ways of setting standards, certifying against them, or social, environmental and economic factors addressed environment. Although the supply of working capital providing affordable loans to smallholder organisations. communicating the different ways companies engage by Fairtrade standards. This framework is also more through social lenders such as Shared Interest and with smallholder farmers. empowering for smallholder farmers as it allows them Oikocredit has increased it has not done so in line with It seems clear that in many sectors companies are to determine their own needs and priorities. The the growth of the Fairtrade market and cannot always already experiencing (or expect to see in the near The themes analysed in the preceding paragraphs Fairtrade Producer Networks, which represent certified cope with periods of volatile price movements. future) symptoms of market failure which present a emerged from a number of discussions around the role smallholder and worker organisations within Fairtrade risk to continuity of supplies. Simply looking to the of Fairtrade standards and certification in developing International, recognise that this also requires them to Some companies’ experience of smallholder sourcing market itself to deliver solutions is unlikely to catalyse more sustainable production and trade of global food improve the demonstration of impact and they are keen (both inside and outside Fairtrade) has been coloured the necessary funds for producers to invest in scaling- commodities. The interviews demonstrated a wide to do so. The new standards framework will therefore by disruptions to their supply when prices peaked up sustainable production. Instead, there is growing range of needs and expectations among companies of help facilitate the process of greater transparency and and farmer organisations could not access sufficient recognition that additional economic interventions are what the Fairtrade system should deliver in the future. accountability that this report has argued for. credit to buy crops from their members, leading to required to enable all parties to plan for the future with In some cases there was also some confusion about contract default. At the same time, the investment confidence and in collaboration. what the system currently guarantees and so a brief It’s also important to provide simple and accessible summary of the Fairtrade standards framework and messages to consumers without over claiming and how it is evolving is provided at appendix I. undermining the hard-earned trust in the FAIRTRADE Mark. While a more flexible approach to standards The need to ‘go further’ than minimum Fairtrade eases the burden on smallholder organisations and standards in driving the type of change that helps their trading partners, it becomes harder for the smallholder farmers secure sustainable livelihoods is Fairtrade Foundation to communicate the core Fairtrade integral to this report, and was prominent in the earlier proposition that the Mark itself represents (and therefore work by Twin. What is less clear is the extent to which applies to all products on which it appears) and what Fairtrade standards should respond to the development development impact arises from the way in which of good or best practice among Fairtrade stakeholders. companies and producers engage with Fairtrade On the one hand are companies (including several principles and ‘go further’ than the minimum standards. interviewed as part of this study) who feel that some of their practices should be made obligatory so that Companies also acknowledged that this is not the there is a more level playing field and that they are best time to experiment with more complex messages. not facing unfair competition from companies who Ethics remain important to consumers but as do not invest to the same extent in producer support disposable incomes for most UK families are squeezed, and capacity building, in sharing of information and value-for-money will be higher on their agenda. in assisting with access to finance. On the other hand Companies welcomed the new approach to standards is the well-recognised risk of adopting a ‘one size fits and certification and hope that reducing complexity all’ approach in prescribing good practice from one will also reduce costs and are keen to help develop context to the wide range of countries, products and tools that differentiate among Fairtrade products, as production and trading methods that are covered by long as the core function of the FAIRTRADE Mark – Fairtrade standards. to differentiate between Fairtrade and conventional products – is secure. Balancing these factors has long been part of the job of the Fairtrade Foundation and its partners in the global Fairtrade system. This is why standards are set through Deles Gussie, Dominica. Gussie is diversifying into grapefruits, coffee and spices to help sustain his business during difficult times a participative multi-stakeholder process that seeks to balance the needs of both smallholder farmers and

24 How businesses are going further to make international supply chains work for smallholder farmers How businesses are going further to make international supply chains work for smallholder farmers 25 VII. Conclusions and next steps REFERENCES

The Fairtrade Foundation intends this importantly, they engage with smallholder farmers 1 UK Fairtrade sales figures for 2012 are 7 Making international supply chains work 16 The Dutch initiative Stichting Max Havelaar through their supply chains and so there is both a need available on 25 February 2013 – check for smallholder farmers: A comparative was the first ‘Fairtrade’ label in the world report to be a contribution to a much- www.fairtrade.org.uk for latest information study of six fair trade value chains and was launched in November 1988 and an opportunity to develop new approaches to needed debate on how smallholder (Fairtrade Foundation, May 2012) delivering greater impact and business/farmer win-win 2 Fairtrade International has 25 members 17 Kicking Away the Ladder: Development farmers can be better connected to models throughout the supply chain. As Albert Einstein who are responsible for promoting the 8 The Future We Want, http:// Strategy in Historical Perspective, Ha- global markets. FAIRTRADE Mark to markets (in addition sustainabledevelopment.un.org/index. Joon Change, 2002. ISBN 978-1-84331- famously remarked, it is insane to expect a different to three members for Africa, Asia and Latin php?menu=1298 027-3 result from doing the same thing over and over again. America whose primary role is representing While this report suggests that business can do more to producer organisations). The performance 9 Olivier de Schutter quoted in the 18 Globalization and Its Discontents, J.E. of market-facing members is measured by Guardian http://www.guardian.co.uk/ Stiglitz, 2002. ISBN 978-0393051247 pursue this objective – and highlights several examples As the Fairtrade system embarks on the process of overall sales of Fairtrade products (where global-development/2012/jun/13/ of where progressive companies are doing just that improving its work with smallholder farmers, it looks Britain is ranked #1) and sales per capita rio20-smallholder-farms-sustainable- 19 Monitoring the Scope and Benefits of – the report has sought to indicate how business is forward to a constructive dialogue on the issues raised agriculture?INTCMP=SRCH Fairtrade, 4th edition, January 2012. 3 Making international supply chains work Available at http://www.fairtrade.net/ one actor in a series of partnerships. Concurrent with in this report and welcomes the ideas of its commercial for smallholder farmers: A comparative 10 http://www.srfood.org/index.php/en/ fileadmin/user_upload/content/2009/ this report, the Fairtrade Foundation is publishing its stakeholders to turn thinking into action. study of six fair trade value chains component/content/article/1-latest- resources/2012-Monitoring_report_ agenda for a fairer food system which calls for greater (Fairtrade Foundation, May 2012) news/1704-farmers-must-not-be- web.pdf disempowered-labourers-on-their-own- investment in sustainable agriculture by governments 4 In May 2011, Fairtrade International land-un-right-to-food-expert 20 The Fairtrade Access Fund was launched and development assistance donors by strengthening introduced a new standards framework to investors by Fairtrade International, smallholders’ tenure of their land, increasing access for Small Producer Organisations, with a 11 http://www.ifad.org/events/op/2012/wfo. Grameen Foundation and Incofin stronger emphasis on producers selecting htm Investment Management in April 2012, to extension services, credit and climate adaptation their own development priorities as part of and its first loan to COPROCAEL coffee finance, as well as improving physical and economic a process of continuous improvement over 12 http://www.guardian.co.uk/global- co-operative was announced on 6 infrastructures that currently hamper the development time. The full standard is available at www. development/2012/jun/13/rio20- February 2013. http://www.fairtrade.net/ fairtrade.net/942.html smallholder-farms-sustainable-agriculture single_view1+M5e0ac2377e5.html of sustainable communities and business development. The Fairtrade Foundation will also continue to develop 5 The Fairtrade system refers to the network 13 State-of-Knowledge Assessment 21 I Will If You Will – Towards Sustainable its work with consumers to raise awareness of their of Labelling Initiatives and Producer of Standards & Certification http:// Consumption was produced jointly by the Networks who work together and through www.resolv.org/site-assessment/ National Consumer Council (NCC) and the role in a fair and sustainable food system by supporting Fairtrade International and FLO-CERT towardsustainability/ Sustainable Development Commission and engaging with the grassroots networks of Fairtrade GmbH, to provide policies, standards, (SDC) in May 2006 with funding from Towns, Schools and Universities and Faith Groups to producer support, certification, licensing 14 After the Harvest: Fighting Hunger in the the Department for Environment, Food and promotion of the FAIRTRADE Mark. Coffeelands http://aftertheharvestorg. and Rural Affairs and the Department of increase public understanding of how the food we buy Roles and responsibilities are explained in blogspot.co.uk/p/film.html Trade and Industry (now the Department in our local shops and markets impacts on the lives more detail in Appendix II. for Business Innovation & Skills). http:// of smallholder farmers around the world. Finally, the 15 Refer to appendix II: Roles and www.sd-commission.org.uk/publications. 6 UK Fairtrade sales figures for 2012 are responsibilities in the Fairtrade system, php?id=367 Fairtrade system has recently concluded a fundamental available on 25 February 2013 – check where role of Global Product Management governance review which gives smallholder farmers and www.fairtrade.org.uk for latest information is explained workers, through their regional networks, much greater responsibility for planning and delivery of Fairtrade’s work. Fairtrade Producer Organisations are eager to play their part in this new structure which embodies the principle of empowerment that is at the heart of Fairtrade, and they recognise their accountability for achieving and demonstrating genuine development impact.

Companies can therefore play their part in taking forward the ideas presented in this report through all of those channels. Companies have a powerful voice in influencing government policies and strategies and need to consider how they can use this to convey their experience of working with smallholders and encourage investment in a fairer food and farming system. Companies also play a hugely important role in ‘choice editing’ on behalf of consumers; this was highlighted

as far back as 2006 by the government-sponsored Justino Peck clearing his cocoa field, TCGA, Belize Sustainable Development Commission.21 But most

26 How businesses are going further to make international supply chains work for smallholder farmers How businesses are going further to make international supply chains work for smallholder farmers 27 TATE & LYLE SUGARS – HOW ORGANISED FARMERS ADD VALUE IN BELIZE

Tate & Lyle Sugars has been buying cane sugar from developing countries for refining in Britain for over The company recognised the need to provide a firm financial commitment each year to BSCFA so 150 years and has been a major buyer of sugar from Belize since the 1960s. Belize is one of the African that plans could be implemented more quickly and were not so dependent on cashflow from the sale -Caribbean-Pacific countries, mainly former colonies that in the1970s were promised preferential of sugar. They also helped develop a mentoring system that aligns Fairtrade compliance with the reduced import tariff access to the European market to compensate them for the subsidies offered to relationships among local stakeholders, and the additional transparency gained through this system has European growers of beet sugar. provided information to increase efficiency. The local Fairtrade Liaison Officer played an important role in helping BSCFA implement the standards in a way that was sensitive to the Belizean context and to As a result, sugar became hugely important to the economy of the country with 6,000 smallholder develop the capacity to plan and manage the use of the premium. As a result, all stakeholders (including growers supplying an industry that employs a total of 40,000 people; this is over 12 per cent of the total bodies such as WWF and the Sugar Research Council) have formed an advisory board that guides population and closer to 85 per cent in the main growing areas in the north of the country. The reform BSCFA’s General Assembly on their investment plans. of the European Union’s sugar regime from 2006 opened the market to large-scale industrialised sugar producers such as Brazil, bringing fierce competition to Belize’s small-scale domestic operations. The Overall, the Fairtrade for All programme and its partnerships has seen crop quality improve, yields phasing of the reforms has meant that Belize has retained a quota that can be sold to the EU without increase by around 30 per cent and has helped build capacity and versatility in the supply chain. It has import duty, but prices fell by 36 per cent between 2009 and 2011 and this cost the Belize sugar been so successful that Tate & Lyle Sugars is applying the lessons from Belize with its other producing industry $12 million, of which $8 million was borne by growers. Their future depends on being able to partners. Most importantly from Fairtrade’s perspective, these results are aligned with the needs and increase their competitiveness through higher productivity and better quality, while continuing to protect aspirations of farmers and this is one of the reasons the programme has been successful. This was their environment; nearly 60 per cent of the country is covered by tropical forests and tourism is the summed up by one of the BSCFA members, Alfredo Ortega, who said ‘We are very happy that we largest foreign exchange earner. are using premium funds for social and environmental projects that enhance farmers’ lives. We want to ensure that if our farmers’ children want to be cane farmers, they can, but if they want to go to However, the way sugar is processed and traded makes it difficult to make these improvements among university, they can do that too.’ individual growers. Tate & Lyle Sugars buy raw sugar from factories in producing countries like Belize and refine it into finished products in Britain, while the factories buy sugar cane from farmers which they have grown and cut on their farms to produce the raw sugar for Tate & Lyle Sugars. The quantity of refined sugar that Tate & Lyle Sugars can produce from a tonne of sugar cane after it has been through the local mill and their UK refinery (which affects the price they pay back to Belize) depends on several factors that are beyond the control of individual farmers. Even where a farmer can improve the quality of their own production, they cannot get the benefit of this as their sugar cane is processed in bulk along with that from all other growers.

The Belize government, the sugar industry and Tate & Lyle Sugars recognised that any effective strategy therefore had to address the dependencies of each part of the supply chain on the rest. The importance of partnerships was embodied in Tate & Lyle Sugars’ announcement of their conversion programme under the banner of Fairtrade for All. The Belize Sugar Cane Farmers Association (BSCFA) has been central to this. It had represented growers since 1960 but has taken on a much larger role as the body through which farmers have engaged with Fairtrade. BSCFA has developed technical support programmes to help farmers improve soil management and water use and has strengthened its position in negotiating with the sugar mill. Meanwhile the factory has embarked on a programme to increase efficiency and environmental standards, which has included a $60 million investment in using the residue of the cane to produce electricity. The way that sugar is collected from farms and delivered to the factory has also been improved; in the past the cane deteriorated in the lengthy queues for processing but by working together the growers, the factory and government bodies have significantly reduced queuing times.

Interviewed for this report, Tate & Lyle Sugars admitted that the initial stages of the process had not been easy and their commitment was stretched as they, their trading partners and the Fairtrade system addressed the challenges of developing partnerships. BSCFA lacked capacity at first to make effective choices about investing the premium to create long-term social and economic value and it was important to help them assess their needs and decide on their priorities among economic, social and environmental issues. Fairtrade Premiums are now being invested in a wide range of projects including improved field management (field rehabilitation, pest control, fertiliser and other inputs) and social and community projects (education, care of the elderly, improvements to community buildings).

28 How businesses are going further to make international supply chains work for smallholder farmers How businesses are going further to make international supply chains work for smallholder farmers 29 CAFEDIRECT – BUSINESS FROM SCRATCH IN SÃO TOMÉ

Cafédirect is a pioneering fair trade business that has been working to deliver tangible development equipment for farmers to apply their new skills. The final stage was to secure Fairtrade certification; this impact through successful and sustainable business operations for over 20 years. The two aspects are was not only so the product could carry the FAIRTRADE Mark, but so the growers could also access the intertwined in the DNA of the company which is part-owned by the grower co-operatives that supply the entire international Fairtrade market in addition to the conventional market. The company’s investment business who elect two members of the company’s board. Reinvestment of profits in producer support in this programme was complemented by funding from the United Nations’ International Fund for has always been a part of Cafédirect’s business model and is over and above the Fairtrade Premium for Agricultural Development (IFAD) and UK Department for International Development (DfID); donors that the crop. Since 2009 these funds have been managed through the Cafédirect Producers’ Foundation were attracted by the company’s business know-how, track record in bringing products to markets and (CPF) , a grower-owned independent charity that works directly with Cafédirect’s 38 smallholder the desire to make the project sustainable beyond the limited timeframe of the donor funding. organisations across 13 countries, reaching over 280,000 coffee, tea and cocoa farmers across East Africa, Latin America and Asia. In contrast to most development programmes, the grower organisations More than 750 cocoa farmers from 11 communities in São Tomé are now part of the CECAQ –11 put forward the projects that will best meet their individual challenges and therefore have most impact co-operative selling Fairtrade cocoa and even before the Fairtrade certification they have been reaping on their particular business and community – a bottom up approach rather than top down. CPF enables the benefits of cutting out the middleman and trading directly. Whereas previously farmers were co-operatives take leadership of training initiatives and information services that smallholders need selling their wet cocoa at around £0.21 pence per kilogramme, they now sell to the co-operative for to improve their farms and livelihoods and to share information and knowledge with each other. As a at least £0.25 pence per kilogramme, while the co-operative earns another £0.82 pence from drying registered charity, CPF can also raise funds from international development donors and philanthropists and processing. This is a five-fold increase for every kilogramme of cocoa that is harvested and in and other sources to complement the funds generated from Cafédirect’s business operations. addition to this, if the cocoa is sold as Fairtrade, the co-operative receives an additional premium of £93 per tonne. Cafédirect cites the São Tomé project as a compelling example of a public/private The Cafédirect brand is strongly associated with the FAIRTRADE Mark by retailers and consumers. It partnership that has delivered a very complex project from scratch in a relatively short space of time. was the first coffee brand to carry the FAIRTRADE Mark in 1994 and its entire product range has long Despite the speed, it was important for farmers to make their own choices about participating. One of been certified to Fairtrade standards. But the company sees compliance with the Fairtrade standards the communities approached by Cafédirect was geographically very close to the base of a large trader as the starting point of their relationship with producers, not the end goal. The company has described who carried a lot of influence and obviously opposed the idea of a co-operative. They experienced its business model as a global farmers market, helping to bring growers and consumers closer together extreme pressure from the trader not to join the new co-operative, and eventually judged the risk of and to deliver the maximum value to both sides; to achieve this the company needs to know the committing to this new way of doing business to be too great. This demonstrates just how much faith growers they are working with and trade with them directly. Along with other Fair Trade Organisations, and commitment the communities also invest in a project like this. Cafédirect also aims to reach out to new growers who could benefit from their work, as well as developing relationships with co-operatives who are already certified. The two-year turnaround for such a complex development project was incredibly fast, however in the world of fast moving consumer goods where Cafédirect sells its products the timescale seemed like an A great example of Cafédirect’s pioneering principles in action can be seen through the development of eternity. São Tomé is now stocked in Waitrose and there is an equally big challenge in communicating their São Tomé hot chocolate in 2008. Cafédirect saw an opportunity to offer a premium hot chocolate the powerful story behind this product to consumers in the few seconds they spend browsing the drink and decided it needed a new growing partner. The company had well-established links with shelves. There is also the challenge to convince retailers to keep stocking the product and make clear cocoa producers in Dominican Republic and Peru but wanted to develop links with Africa which at the part that they play in the success of this incredible journey. that time supplied just a small proportion of cocoa sold as Fairtrade. West Africa, which supplies the most cocoa to the conventional market, was becoming increasingly prominent in the Fairtrade system through the partnership between Kuapa Kokoo and Divine Chocolate in Ghana and then the subsequent engagement of companies like Cadbury/Kraft, Nestle and Mars with Fairtrade programmes in Ghana and Cote d’Ivoire. Cafédirect sought to have the greatest development impact at origin whilst ensuring the best quality product being brought onto the market, and after researching opportunities in Sierra Leone, they selected São Tomé & Príncipe. São Tomé (the larger island of the two making up the nation of 170,000 people) occupies just 600 square miles of which one-third is covered in rainforest. The high quality criollo bean has been grown on the island for centuries, gaining it the nickname of ‘Chocolate Island’ amongst chocolate connoisseurs. Cocoa exports provided 95 per cent of the country’s export earnings in 2009 and were worth more than $13 million yet the country remains one of the poorest in the world with most of the profits taken by local traders who travel around farming areas buying unrefined ‘wet’ cocoa at the roadside.

Cafédirect found an opportunity to bring an entire community onto the global cocoa market so they would no longer be dependent on miserly local traders. The four-stage programme to establish co-operatives and develop their capacity to export a high-quality product took two years. The first step was to build volume by getting the farmers to work together so that collectively they had a sufficient quantity of cocoa to export. The second was to teach the farmers the skills of fermenting and drying so that they could improve quality and add value to the raw crop and the third was providing the tools and Photography: Cafédirect

30 How businesses are going further to make international supply chains work for smallholder farmers How businesses are going further to make international supply chains work for smallholder farmers 31 BEN & JERRY’S – PROMOTING SUPPLY CHAIN PARTNERSHIPS GLOBALLY

Super-premium ice-cream brand Ben & Jerry’s created a business model based upon a sustainable Another partnership involves fair trade dried fruit company Tropical Wholefoods and the Mountain Fruits business concept of linked prosperity, combining social, product and economic values. They sum it up project that supports smallholders in the Gilgit-Baltistan region of Pakistan, close to the K2 mountain. as ‘making the best possible ice cream in the nicest possible way’. So they found Fairtrade a natural fit Mountain Fruits evolved from a rural development programme of the Aga Khan Foundation and involves when they looked at including certified ingredients in some of their ice creams in 2005. Co-founder Jerry 5,000 farmers organised into 110 groups who grow apricots, apples, and cherries and have now Greenfield said ‘The whole concept goes to the heart of our values and our sense of right and wrong’. expanded into almonds and walnuts. As well as providing pre-finance and buying on Fairtrade terms from farmers, Mountain Fruits run extension services to improve farming techniques and post-harvest Ben & Jerry’s has been a wholly-owned subsidiary of Unilever since 2000 and sees its role in the practices. They also run two factories where fruits are dried and nuts are graded before packing. Up to company as ‘a pioneer that continually challenges how business can be a force for good and 100 female workers are seasonally employed in the factory; a rare opportunity for them to contribute to address inequities inherent in global business’.1 In 2010, Unilever published a Sustainable Living the family income as it is the only place in the Northern Areas where women can find paid work. Plan which accepts responsibility not just for the economic, social and environmental impacts of its direct operations but also its wider footprint with suppliers, distributors and consumers. Ben & Almonds are a relatively new development for Mountain Fruits and the investment in a nut processing Jerry’s recognise that the values of the Sustainable Living Plan are aligned with their brand’s unique factory and a seedling nursery has been supported by the Sainsbury’s Fair Development Fund. 800 of Social Mission which has built strong customer loyalty over 35 years. So they announced a long-term the farmers who supply Mountain Fruits now grow nuts as well as fruit. This investment has been crucial commitment to sourcing Fairtrade-certified ingredients, which included a partnership with the Fairtrade to deliver the volume of almonds that Ben & Jerry’s need for their Fairtrade commitment; although by Foundation. Ben & Jerry’s committed to source all ingredients covered by Fairtrade standards as the standards of a global brand the volumes are small, Ben & Jerry’s conversion to Fairtrade requires a Fairtrade certified by 2013. The most important of these is sugar, which goes into the basic ice cream tripling of availability of Fairtrade almonds. mix for all product lines as well as 42 different composite ingredients that Ben & Jerry’s buy as ‘chunks, swirls and flavours’ for its European products alone. For smallholders working with Fairtrade this means Tropical Wholefoods play a critical role in ensuring good communication up and down the supply chain additional business opportunities to sell cocoa, coffee, vanilla, bananas, almonds, coconuts and other in order to build understanding among the smallholders in Pakistan of market requirements and trends, fruits, nuts, spices and oils. and within Ben & Jerry’s of the reality for the farmers. They also help smooth out fluctuations in demand from Ben & Jerry’s factories that in the conventional market are dealt with by trading on spot commodity Ben & Jerry’s has a direct trading programme with their suppliers of milk and cream but the wide range markets by absorbing the risk of making longer-term commitments to farmers. of other ingredients, bought to very particular specifications and often in small quantities, means that most of them are bought through intermediaries and this applies to many Fairtrade ingredients. Although they don’t purchase directly from smallholders, Ben & Jerry’s still want to know the origin of their ingredients and aim for transparency and accountability in their supply chains. They believe partnerships with Fair Trade Organisations are crucial to achieving this.

One example is coffee extract, all of which originates from the Huatusco Union Co-operative, in Veracruz, Mexico. Ben & Jerry’s buys their coffee extract from a small US company called Coffee Enterprises who work with fair trade coffee importer Sustainable Harvest to source the beans from Huatusco. Sustainable Harvest works by establishing transparent relationships across the whole supply chain that bring all the different actors together. Because the farmers in Huatusco talk to the quality managers at Coffee Enterprises they understand each others’ needs and the problems that need to be addressed. This allows Sustainable Harvest to invest in the training and management systems that the co-operative and their smallholder members need to produce high quality coffee. Fair trade finance provider Shared Interest also has an important role to play as the high-quality Arabica coffee grown by the 2,000 farmers in Huatusco is in high demand for the speciality coffee sector and prices are volatile. This attracts private coffee traders who bid up prices in the local market and in order to match these prices and fulfil long-term contracts, such as those placedby Ben & Jerry’s supplier, the co- operative needs good access to working capital. Shared Interest is providing Huatusco with an export credit facility so that the co-operative can pay its farmers in advance of the harvest and avoid them being tempted to sell elsewhere. The profits from this business are reinvested in improving yield and profitability, food and nutrition and healthcare facilities which helps build long-term, sustainable trade relationships. Huatusco also has an innovative programme to address the common problem in rural Mexico of young people leaving to find employment elsewhere. The co-operative sponsors scholarships for students at a nearby university in return for a commitment that they will work for the co-operative for four years after they graduate. Photography (center and top right): Tropical Wholefoods 1 Incoming Ben & Jerry’s CEO Jostein Solheim in an interview with Food Processing magazine, April 2010

32 How businesses are going further to make international supply chains work for smallholder farmers How businesses are going further to make international supply chains work for smallholder farmers 33 MARKS & SPENCER – HELPING FARMERS CAPTURE VALUE IN KENYA

Marks & Spencer is a retailer that prides itself on developing strong supply chain relationships. The now have all the skills they need to sell their own finished tea product in their home market, while retailer started converting existing suppliers to Fairtrade in 2004 and did so by supporting existing customers in the UK can enjoy a great tasting cup of tea that for the first time has been packed by the smallholder co-operatives to build capacity to meet Fairtrade standards. This enabled Marks & Spencer farmers who grew it. coffee shops – the UK’s third largest chain – to go 100 per cent Fairtrade in 2006 and to follow with 100 per cent retail tea and coffee supply in 2008. Since 2007 Marks & Spencer has increased food Fairtrade From the Iria-ini perspective, they have the chance to work with Marks & Spencer, leveraging their sales by almost 90 per cent and has continued to focus on building smallholders’ capacity to meet technical, product development and commercial skills but also to use the capacity created by this market requirements, to adapt to climate change and most recently to explore how smallholders could partnership to help them access other markets. This is extremely important – the challenge for any tea diversify their income by adding value. packer is to establish a point of difference in the market. Following the capacity building created as a result of this project, Iria-ini are developing the skills to pack their own teabags and market them to both Tea offers good potential for adding value at source as conventional supply chains generally import local and international markets. tea in bulk for blending, packing, marketing and distribution in the UK. Tea is effectively treated as a commodity ingredient, even though most of the processing takes place at source and only the final The tea sold generates an additional $2-$3 per kilogramme due to the fact that most of the value is mixing and packing stages are carried out in the UK. Marks & Spencer has worked with one of its being added to the product at source rather than in the UK. The 8,000 farmers supplying Iria-ini are Fairtrade co-operatives, Iria-ini to launch the first Kenyan tea to begrown and packed at source. A all shareholders in the factory so benefit directly from any additional income via their annual profit major step forwards for the Kenyan tea industry, the project has been underway since 2010 with the share. A second order of tea has now arrived in UK stores for 2013 Fairtrade Fortnight. The aim of the aim of adding value so that smallholder farmers can supply high quality tea direct to both international project was to provide Iria-ini with the knowledge and skills to grow their packing business beyond just retailers and to their home market in Kenya. supplying to Marks & Spencer; this has proved harder to turn into reality than expected. A lesson for future similar initiatives is to ensure ongoing local stakeholder engagement and not to underestimate Funding for this work has been provided by Marks & Spencer and match funding from the Department how much capacity building is needed to build communication, marketing and financial skills to ensure for International Development’s Food Retail Industry Challenge Fund (FRICH) which has been long term viability of scaling a value addition project beyond reliance on the initial project founder. established to develop opportunities for farmers in countries north of South Africa and south of the Sahara to sell to European markets. The volume and value of products originating from these countries As part of KPMG research Marks & Spencer expressed concerns (also raised by other stakeholders is low in comparison to those coming from Asia and South/Latin America and there is potential to interviewed for this report) about duplication of effort and cost for many smallholder organisations develop significant income for smallholders and agricultural workers. The fund was designed to support who need several different certificates for their social and environmental practices to ensure they can new ideas that connect African farmers with global retailers through innovative business partnerships sell to as many customers as possible. While there are unique aspects to Fairtrade standards which and achieves results by removing blockages to market access and making sure that European shoppers Marks & Spencer respects, it is also clear that there is considerable overlap in the scope of the various know what differences their purchases make to poor farmers. FRICH is now supporting 25 innovative standards. Marks & Spencer would like to see clearer communication on the unique benefit Fairtrade partnership in Kenya, Democratic Republic of Congo, Malawi, Rwanda, São Tomé and Principé, Ghana, brings to supply chains, reduce duplicated certification efforts and avoid confusion over attribution of Uganda, Senegal, Namibia, Zimbabwe and Ethiopia and covers products including tea, coffee, flowers, impact. At the same time, their nine years’ engagement with Fairtrade has demonstrated the value of tilapia fish, beef, baobab, flowers, palm oil, peanuts and vanilla. its approach of working to empower democratic organisations of smallholders to overcome entrenched business practices and structures in developing countries. Effective organisation of a co-operative Iria-ini Tea Factory comes under the umbrella of the Kenya Tea Development Agency (KTDA), but is an enables individuals to develop their skills and the organisation their capacity and this is especially the independent company collectively owned by local farmers. The tea is grown by 8,000 farmers in the case where literacy levels are low and there is a traditional hierarchy making decisions that is not easy Mathira division of Nyeri North District, which is surrounded by the scenic highlands west of Mount for farmers to challenge. Marks & Spencer have welcomed the value that Fairtrade Liaison Officers Kenya. Marks & Spencer directly provided technical and commercial support from its team of experts bring to this process and appreciate the quality and range of services they are providing to Fairtrade to ensure the Fairtrade farmers developed the skills needed to understand how to pack tea and most producers, especially in sharing knowledge and best practice across product sectors and within regions. importantly add value to what they were growing. A teabag packing line has now been established They would like to see the Fairtrade system invest more in these kind of resources in the future. at Iria-ini and Marks & Spencer has been working with the factory to ensure that appropriate training has been provided and the tea packing room brought up to international standards. The project has generated a huge amount of interest in both Kenya and the UK. The Kenyan President visited the farmers and the newly built tea packing facility in November 2011 to see the production line and the first tea to be packed by the farmers at the factory.

The tea was launched at Marks & Spencer in February 2012 to coincide with Fairtrade Fortnight and Marks & Spencer hosted a visit from Iria-ini co-operative Board to promote the launch which included visits to stores and knowledge sharing visits to some of their other UK based suppliers. A video of the project was shown in stores and on the Marks & Spencer website to raise awareness amongst customers. As part of its Plan A commitment to be the world’s most sustainable retailer, Marks & Spencer really want to make a positive impact on the suppliers who they work with and are really proud of what this project has achieved. It’s a huge step forwards for the Kenyan tea industry – the farmers

34 How businesses are going further to make international supply chains work for smallholder farmers How businesses are going further to make international supply chains work for smallholder farmers 35 TRAIDCRAFT – DEVELOPING ADDED-VALUE TEA PARTNERSHIPS IN MALAWI

Traidcraft’s vision is a world free from poverty, where trade is just and people and communities can Association Trust in its purchasing and support and development programme. Msuwadzi comprises flourish. With a mission to ‘fight poverty through trade’, its role is to work with poor people to help 155 farmers producing 750,000 kilos of tea from 75 hectares that they sell to the Satemwa Tea secure improved and sustainable incomes, greater dignity and opportunity, and policies and practices Estate factory; accounting for about 5 per cent of the total tea processed by the factory. The fact that reflect their needs. Traidcraft comprises a development charity (Traidcraft Exchange) and a trading that Msuwadzi were selling less tea to Fairtrade buyers than other certified producers in Malawi was company (Traidcraft plc.) to achieve its mission. a factor in this decision, alongside the needs that had been assessed in the research stage of the project. Traidcraft then worked with both the smallholder farmer association and the Satemwa factory Traidcraft was established in 1979 and has been at the forefront of innovating ways in which fair trade to devise a six-month programme to make best use of the available budget. Although this might not can extend its reach, impact and influence. This includes, for example, helping to set up the fair trade address some of the most difficult long-term challenges facing the farmers, Traidcraft’s long experience hot beverages company Cafédirect, the ethical investment society Shared Interest as well as the has demonstrated the importance of short, targeted, stand-alone pieces of work that deliver practical Fairtrade Foundation. Traidcraft has also helped develop the breadth of Fairtrade products available results, rather than attempting longer-term interventions that raise undue expectations among farmers and has a number of noteable firsts including wine, sugar and dried fruit and working with the Fairtrade and may lead to disappointment. In addition Traidcraft sought permission from Fairtrade International to Foundation and Fairtrade International to develop standards so that more producers and companies allocate to the Msuwadzi farmers 100 per cent of the Fairtrade Premium linked to its purchase. Normally could get involved. because they only supply 5 per cent of Satemwa’s tea, they would have received only 5 per cent of Traidcraft’s premium payment. Having played an important role in building awareness and support for the FAIRTRADE Mark among businesses and consumers, Traidcraft is continually looking for ways in which it can continue to The programme that was agreed through consultation with the farmers of Msuwadzi and the pioneer and innovate. These include new product categories like charcoal and rubber where Traidcraft management of the Satemwa factory started with the purchasing of electronic weighing equipment that is evaluating the potential for Fairtrade standards but just as importantly they are looking at different ensures the smallholders are paid for the correct weight of the tea they have delivered. The cost of this ways of trading that bring unique development impact now that many conventional businesses are was shared between Traidcraft and the tea factory. It also involved building shelters at the weighing engaging with Fairtrade. Rather than just working with well-established Fairtrade certified producers, stations so that the tea could be sheltered from the sun and prevents it drying out while waiting to be Traidcraft aims to target those organisations that are at the start of their journey of accessing the weighed. This increases the quality of the leaf that can be sold to packers. As a result of these initiatives, Fairtrade market to generate the benefits of the Fairtrade price andpremium and then invest those the factory has introduced an improved payment system for the farmers linked to the quality of the benefits in social, economic and environmental improvements. To do this Traidcraft adopts a three-level tea they deliver, while Traidcraft’s tea packer in Britain has reported back on the results of the tests producer categorisation process that helps target support and assistance according to developmental conducted by their professional taster which includes advice on how to further improve quality. needs irrespective of whether there is a direct trade relationship or not. This categorisation process A further project again led by Imani Development with further funding from the Scottish Malawi Trade also embraces producers who are certified to Fairtrade standards (or to WFTO standards in the case of Partnership together with a small contribution from Traidcraft is advising Msuwadzi on how to minimise handcrafts) so that Traidcraft can buy from them occasionally without making the long-term commitment the environmental impact of tea production, working on ways of helping producers capture more of the that it does to its priority development partners. value chain, and exploring the potential for packing tea for sale locally or regionally and contributing to the work that Fairtrade International is doing with many different stakeholders from the tea sector to A good example of Traidcraft’s approach to finding a unique role for their work as a Fair Trade increase returns for farmers. Organisation is the selection of Msuwadzi Association Trust of smallholder tea growers in Malawi for inclusion in the Traidcraft brand of teas. There are three organisations of smallholder tea growers that This project was highlighted by Traidcraft as an example of how collaboration among different business are certified to Fairtrade standards in Malawi, together representing nearly 10,000 farmers. Tea has been and development actors, coupled with some grant funding and increased transparency in trading grown in Malawi since 1891 and along with tobacco and sugar is a major earner of foreign currency, relationships, has generated efficiencies that have helped farmers increase their incomes without accounting for 8 per cent of exports. Malawian tea is in good demand from buyers, especially in the raising the price for consumers. Like other Fair Trade Organisations Traidcraft is keen to inform UK and South Africa as its strong flavour and red colour makes it suitable for blending and packing consumers of how they go beyond minimum Fairtrade standards to deliver a better deal for smallholder in tea bags. farmers and to encourage other businesses to incorporate their learning from these kinds of projects in their buying practices. Tea is one of the products (along with bananas) where Fairtrade seeks to help both smallholder farmers and estate workers. These are often people from the same families and communities and in most tea- producing regions families earn money from farming their own land and working on tea estates and in tea factories, depending on seasonal demands. Indeed the fortunes of smallholder farmers are closely bound up with tea factories that are often owned by large estates. Smallholder farmers depend on the factory to receive and process their fresh leaves quickly and correctly as this is crucial for producing high quality tea that can sell at a good price; this means they also have to sell to the factory closest to their farm and don’t have a choice of buyer. Fortunately relationships between smallholders and tea estates in Malawi are generally good and have developed as mutually beneficial partnerships, although most smallholders have no information on what happens to their tea beyond the factory gate.

After investigating the needs of smallholders in Malawi and in partnership with Imani Development who secured funding from the Scottish Malawi Trade Partnership (SMTP), Traidcraft selected Msuwadzi Photography: Traidcraft

36 How businesses are going further to make international supply chains work for smallholder farmers How businesses are going further to make international supply chains work for smallholder farmers 37 LIBERATION FOODS CIC – HELPING SMALL FARMERS MEET EU FOOD SAFETY REQUIREMENTS IN MALAWI

Liberation is another example of how the work of helping producers tackle their own development organisations… that develops the commercial capacity of its members, and delivers programmes which needs and priorities can be integrated into a viable business model. This means development projects enhance member productivity’. NASFAM organises 100,000 smallholder farmers into clubs of 10-15 become self-sustaining by being linked to profitable trading while the business offer is enhanced by members which combine to form Action Groups which are the key points for sharing of information to the successful development stories. From this perspective, overcoming the barriers of integrating members, and for the bulking of member crops. Action Groups combine to form associations that are smallholders in fast-moving and high-volume supply chains is just another regular business challenge affiliated to NASFAM itself. NASFAM‘s commercial activities include the marketing of inputs to farmers and not one that is regarded as an act of charity or social responsibility. and produce from farmers but they also deliver community development and capacity building services to their members. The Mchinji Area Smallholder Farmers’ Association (MASFA) is typical of NASFAM’s Liberation is a specialist nut company and the latest venture of its kind from Twin, known for setting up members and comprises 2,700 small-scale farmers who used to rely on tobacco for their income but highly successful Fair Trade brands such as Cafédirect and Divine Chocolate with farmer-ownership have now switched to groundnuts as a better long-term opportunity. at the heart of their business models. A pioneer in the Fair Trade movement in the 1980s, Twin is now the UK’s leading ethical trade organisation working on the ground in Africa and Latin America in coffee, With the help of partner organisations like Twin and donors including the national development agencies cocoa and nuts. Twin’s trailblazing work in areas of conflict such as the DRC, and innovative gender of Britain, USA and Norway, NASFAM and other organisations such as Comic Relief and Cordaid, are empowerment, climate change and food safety programmes seek to unlock the value in supply chains supporting the investment needed to produce better products and the commercial framework to make for smallholder farmers. the investment worthwhile for farmers. Despite being a development partner, Twin’s purchasing process is not a soft touch. Their report highlighted how during the 2011 harvest season NASFAM increased their Twin and its family of brands have been in the vanguard of building recognition of Fairtrade among purchase price for MASFA’s groundnuts from 43 US cents per kilo to 70 US cents per kilo as farmers consumers and of establishing Fairtrade products as a category that mainstream retailers can manage supplied increasingly high quality, but then withdrew from buying when quality standards dropped. and develop. The success of this approach means that retailers are open to new product and value Over the past two years MASFA have received $43,000 in Fairtrade Premium, some of which has chain opportunities so that businesses like Liberation can invest in difficult regions around the world to been spent on improving facilities at the local hospital. More recently Fairtrade Premium has been develop more reliable routes to market for smallholders and overcome risks that would be a barrier for earmarked for building Community Buying Centres with a secure office that can hold cash for paying conventional food supply chains. Most peanuts offered to consumers in Britain come from the USA, farmers promptly and storage facilities which will ensure product quality by protecting the peanuts Argentina or China, however Liberation has been able to develop a farmer-owned business providing from sun and the rain. Sainsbury’s Fair Development Fund, which is managed by Comic Relief, also peanuts, cashews and Brazil nuts from 22,000 smallholders in Malawi, Mozambique, Nicaragua, El invested in shelling machines which led to the formation of Afri-Nut, a new peanut processing factory in Salvador, Bolivia, Peru, Brazil and India. While Twin was setting up the trading and marketing operations Malawi which NASFAM and Twin co-own with Ex Agris, Cordaid and the Waterloo Foundation. Afri-Nut of Liberation it was also working with the Fairtrade Foundation to develop proposals for international enables NASFAM to process a higher quantity of nuts from their members more quickly and access an standards for nuts that were then approved by Fairtrade International so that more producers and increasing number of markets and is focused on learning how to manage aflatoxin for local, regional and companies could get involved. international value chains.

Apart from the potential for export earnings, groundnuts are an important source of protein for As with other examples, Liberation’s experience in Malawi shows how bringing actors with technical families in Africa and they are used to make flour, soup, porridge, and milk. In many African countries, expertise and resources together with organisations that can represent and communicate with groundnuts are considered a ‘women’s crop’ and is one of the few ways in which women can earn cash grassroots farmer organisations offers the scale that international markets and development and increase their economic participation, so the crop increases women’s empowerment. However, organisations need while ensuring the sustainable impact that only comes from ‘bottom-up’ projects. groundnuts are susceptible to infestation by fungi that produce aflatoxin, a poisonous substance that A commitment to long-term partnerships, transparency up and down the supply chain and equitable has been identified as a cause of liver cancers, impaired growth in children under five and suppression sharing of risk and reward all contribute to a programme that ensures farmers can understand what they of the immune system. The Center for Disease Control (CDC) estimates that 4.5 billion people are need to do and why they need to do it. The MASFA farmers have received a lot of feedback on quality chronically exposed to aflatoxin in their diets, mostly in developing countries. Stringent food safety from NASFAM but just as important to them were samples of the packaged nuts that Liberation sell in regulations in Europe and other wealthy regions prevent aflatoxin from entering food supply chains but Britain, which feature a photo of one of their members. subsistence farmers in poor countries are vulnerable and need good irrigation and insect control prior to harvesting and good drying and storage facilities afterwards to avoid infestation.

Groundnuts were a major source of income for small farmers and of export earnings for Malawi in the 1960s and 1970s, but when aflatoxin outbreaks occurred the low priority given to the smallholder sector by global economic institutions discouraged government investment in extension services and infrastructure. As a result, Africa’s share of the world market fell from 70 per cent in 1970 to just 5 per cent in 2005. This is a typical scenario faced by smallholder farmers who are dependent on other actors for their access to market and who can only overcome these barriers by working in associations that can operate processing and distribution at the scale needed to control problems like aflatoxin. At the same time those associations can also provide better education and training to individual farmers so that the causes of the problem are also addressed. This is how the National Smallholder Farmers’ Association of Malawi (NASFAM) works; as a ‘sustainable network of smallholder-owned business

38 How businesses are going further to make international supply chains work for smallholder farmers How businesses are going further to make international supply chains work for smallholder farmers 39 Appendix I Appendix II

The Fairtrade standards framework The Fairtrade standards framework

The fundamental purpose of Fairtrade standards For both parties, Fairtrade establishes a goal of KPMG’s report on interviews with commercial The Fairtrade Foundation is the first and main point of is to establish a framework for more equitable and long-term commitment and sharing of information, stakeholders indicated some gaps between the contact for commercial stakeholders operating in the sustainable trade relationships in which buyers offer although these are often general principles of services they expected from the Fairtrade system UK market. Most are aware that the Foundation exists better terms and conditions than the conventional behaviour rather than specifically defined and and actual delivery. In some cases this gap has as a part of a global system although many will have market and producers use the benefits of this trade audited practices, as the costs of doing this would arisen because of ongoing changes to Fairtrade’s no dealings with other parts of it. However, some will for economic, social and environmental improvements be prohibitive. operations. The last few years have seen a number liaise and transact with several Fairtrade organisations that support sustainable development goals. Once of rapid and fundamental changes to standards, and these multiple relationships generally develop out again, this is not a charitable handout but a reciprocal In May 2011, the Fairtrade standard for smallholder certification processes and producer support of companies’ deeper engagement with Fairtrade as relationship between buyers and sellers. organisations was restructured into a number of functions. At the same time, companies’ engagement they move beyond simply licensing the FAIRTRADE chapters with one covering the rules for ethical and with Fairtrade has broadened so that several Mark on their products and as relationships with From this perspective, the requirements of standards sustainable production in areas where Fairtrade is departments may have contact with parts of the producers (whether direct or through intermediaries) on small-scale farmers (and on which they are audited comparable to other ethical or sustainable production system without adequate or current information. The take on greater importance. This transition is therefore by FLO-Cert) are that they: standards, while a Business and Development chapter Fairtrade Foundation is keen to understand how it can highly relevant to the aims of this report but many covers the rules that are specific to Fairtrade and are improve its service levels and meet the needs of its companies find it challenging as previously hidden • Are organised in democratic associations or co- intended to lay the foundations for empowerment and commercial stakeholders (and this report is a key part aspects of the system become more visible and operatives that provide a means for them to invest development, and on these topics Fairtrade is unique of that) but it is also important that there is clarity on need to be understood. This perhaps reflects implicit in collective improvements, e.g. taking more control and stands out from other standard systems. The first how the system actually works currently. expectations that scaling up their engagement with over post-farm processing and exporting. The of these changes is aimed at reducing the burden Fairtrade would lead to simpler and faster processes, organisation also provides a vehicle for receiving on smallholder organisations that work with several although there is no reason why Fairtrade should and managing the Fairtrade Premium according certification schemes by aligning their internal control be different from any other business activity with to the needs and wishes of its members. systems. Fairtrade International is also in discussions greater investment of resources also requiring an with other standard setters to reduce duplication in increase in management and control arrangements. • Meet minimum social and environmental standards certification processes. The second change allows The Foundation and its partners in the Fairtrade and commit to continual improvements, using the smallholder organisations to determine their own International network have given this issue a great Fairtrade Premium as well as other resources. As development plans, within a general framework of deal of attention in recent years and structures and well as conventional market requirements such economic, environmental and social goals, and invest operating processes have evolved and will continue as good agricultural practice and safe working the Fairtrade Premium according to their individual to evolve to streamline interactions with stakeholders. conditions, Fairtrade standards also tackle issues needs and priorities. However, as with so many other aspects of Fairtrade, such as gender equality and encourage greater there is no single solution that is right for all contexts involvement of women in economic activities Traceability is an important aspect of Fairtrade in and situations and as relationships move to scale and decisions on spending income. They also terms of buyers and consumers being able to identify there will always be a need to transition from initial encourage adoption of more sustainable agricultural the origin of products and for producers to know more relationships to modes that are more appropriate practices including reduced use of agro-chemicals about the destination of what they sell, but where the for future plans. Meanwhile, the aim is for all and adoption of integrated crop management. costs of physical traceability outweighs the benefits stakeholders to work as far as possible with the for any of these groups, then Fairtrade accepts that part of the system that is closest to them and that In recognition of these commitments from farmers, full traceability may take time to achieve. Meanwhile, is focused on delivering the services they need, buyers commit to payment of: for some product categories, the system operates and for that organisation to be responsible and a monitoring system (known as mass balance) that accountable for developing effective relationships • Either the market price or the Fairtrade minimum ensures the sales volumes of all products bearing with them. For companies operating in the UK, the price, whichever is the higher at the time the the FAIRTRADE Mark are matched by equivalent Fairtrade Foundation therefore remains their primary contract is agreed. purchases from Fairtrade certified producers in access point to the global system that comprises the accordance with the requirements on minimum price following functions. • An additional premium to help fund improvements, and premium. The companies that trade in Fairtrade as specified in individual product standards. products are audited either by FLO-Cert (if they are • Strategy, Policy and Standards that define a exporters or importers) or by the Labelling Initiative if consistent global framework for the Fairtrade • Pre-finance of contracts when requested by the they are licensees of the FAIRTRADE Mark. system are the responsibility of Fairtrade smallholder organisation to enable them to secure International (formerly known as FLO) which also supplies from their members. The buyer may pass maintains the system’s intellectual property rights, Cocoa farmer Vida Addai collects water on the cost of interest incurred (which is usually at the community borehole, Ghana such as the FAIRTRADE Mark. much lower than what the smallholder organisation would pay locally).

40 How businesses are going further to make international supply chains work for smallholder farmers How businesses are going further to make international supply chains work for smallholder farmers 41 Appendix III

• Global Product Management aims to facilitate the end of 2013, both categories will be replaced List of interviewees and improve the information flow and the contact by a single membership class of National/Regional between actors involved in the production and Fairtrade Organisation. marketing of Fairtrade products to achieve a stable Uriel Buitrago Development & Sustainability Manager, Ecuador Armajaro supply and sustainable growth. There are many other activities that have developed Jye Pey Cheah Development & Sustainability Manager, Asia Armajaro around these core services and that are important in Nicko Debenham Global Director of Development & Sustainability Armajaro • Monitoring and evaluation and longer-term impact adding value for stakeholders. For example, Fairtrade Clemenine Leahy Development & Sustainability Executive Assistant Armajaro assessment are integral to these functions in has a unique voice in trade-related advocacy work in Godfrey Loh Head of Development & Sustainability, Asia Armajaro providing the evidence base and learning on which being able to speak from the practical experience of Vince McAleer Head of Development & Sustainability, West Africa Armajaro strategies, policies and standards are based. These its stakeholders and especially in providing a platform Rob Michalak Global Director of Social Mission Ben & Jerry’s tools are all developed through a participative multi- for small-scale producers in international debates. Jacquie Bance Head of Communications Cafédirect stakeholder process, and so Labelling Initiatives Also, while the system aims to sustain its day-to- Violeta Stevens Head of Supply Chain Cafédirect like the Fairtrade Foundation in the UK or Producer day operations through fees from operators, donor Wolfgang Weinman Head of Impact & Sustainability Cafédirect Networks may take responsibility for particular organisations around the world invest in the scaling Claire Rhodes General Manager Cafédirect Producers’ projects or project activities e.g. commissioning up of its work. All parts of the system collaborate on Foundation impact assessment of a particular product, series these activities according to the opportunities that Jim Atkinson Category Buyer, Fruit Co-operative Group of products or region. arise in their areas of operation and their capacity. Jenny Dixon Category Buyer, Chocolate Co-operative Group Rebecca Forecast International Development Adviser Co-operative Group • Advice and support to organisations desiring Brad Hill Fairtrade Strategic Development Manager Co-operative Group certification, especially producers who face the Marjorie Murphy Senior Commercial Manager Co-operative Group greatest changes and costs in complying with Hannah Newcomb International Development Manager Co-operative Group standards and securing certification. With the Kevin Retford Technical Manager Co-operative Group assistance of development assistance grants, Chris Shearlock Sustainable Development Manager Co-operative Group Fairtrade International has established a network Janet Weston Senior Marketing Manager Co-operative Group of Liaison Officers who provide these services Michael Pennant-Jones Group Sustainable Business Manager Finlays although the regional Producer Networks are Sandy Balfour Chairman Liberation Foods gradually taking more responsibility for this function. Laura Polanco Technical Manager Liberation Foods Angela del Valle Operations Manager Liberation Foods • Certification of operators and products is managed Andrew Emmott Senior Manager (Nuts) Twin independently from Fairtrade International by FLO- Leena Camadoo Nut Trading Manager Twin Cert GmbH, a wholly-owned subsidiary company Louise Nicholls Head of Responsible Sourcing for Food Marks & Spencer of Fairtrade International with its own supervisory Alastair Child Cocoa Sustainability Director Mars, Inc board. FLO-Cert is accredited to ISO65 standards Andrew Stamford European Lead Buyer Nestlé for certification bodies. Jan Philipp Stelter Senior Cocoa Buyer Nestlé Wouter Van Tol Head of Sustainability and Marketing & Communication Nestlé • Licensing and promotion of the FAIRTRADE Mark is Julia Clarke Fairtrade Lead Tate & Lyle Sugars the responsibility of Fairtrade International’s market- Tama Fuzer Marketing Director Tate & Lyle Sugars facing members who work to build consumer Gavin Wakley Commercial Director Caribbean & Americas Tate & Lyle Sugars awareness and demand and work with commercial Jenny File Product Marketing Manager Traidcraft stakeholders to offer Fairtrade certified products Joe Osman Sourcing Director Traidcraft to meet the demand. Historically these have been Nicky Robinson Head of Development (Non-Food) Traidcraft known as Labelling Initiatives and have worked Kate Sebag Director Tropical Wholefoods in countries with well-established civil society anti-poverty and labour rights organisations; the Fairtrade Foundation which was set up by six such organisations in 1992 is typical of this model. More recently, Fairtrade International has developed partnerships with Marketing Organisations representing networks in other countries, like South Africa, Czech Republic and Brazil, who are keen to work with the Fairtrade mark as a way of Stephen Best, banana farmer and developing such civil society capacity and to extend member of WINFA in Dennery, St Lucia Fairtrade to new markets. It is expected that by

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